Sunday, June 16, 2024

Motivated by low inflation, weak economy, central bank cuts interest rate

The central bank cut its key interest rate by 25 basis points to 7.75% on Thursday, citing low inflation and a weak economy.

The quarter-point cut was the second in as many months after the Bank of México reduced rates for the first time in five years in August.

The board’s decision came just after the statistics agency Inegi announced that the economy contracted 0.58% in July compared to the same month of 2018, while inflation cooled in the first half of September to a three-year low of 2.99%, which is within the Bank of México’s target range of 3% give or take a percentage point.

“Considering the reduction of headline inflation, the ample slack in the economy and the recent behavior of external and domestic yield curves, the Bank of México’s governing board decided by majority to lower the target for the overnight interbank interest rate to 7.75%,” the bank said in a statement.

Two of the board members voted for an even bigger cut of half a percentage point to 7.5%.

With the economy slowing, the central bank said that maintaining “prudent and firm monetary policy” was “particularly important.”

It added that the “adoption of measures that foster an environment of confidence and certainty for investment [and] greater productivity” is equally important and that public finances need to be “sustainably strengthened.”

The rate cut comes a month after the Bank of México slashed its 2019 growth outlook to a range between 0.2% and 0.7% from the 0.8% to 1.8% GDP expansion it predicted in May.

It also follows a quarter-point cut made last week by the Federal Reserve of the United States, where borrowing costs are now set at a rate of 1.75% to 2%.

Source: El Financiero (sp) 

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