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Mexico Central Banker Sees Space for Two More Cuts in 2021

Max de Haldevang and Nacha Cattan
·2 min read

(Bloomberg) -- Mexico could have space for at least two more interest rate cuts in 2021 if inflation stays in line with expectations, central bank Deputy Governor Gerardo Esquivel told Bloomberg News on Friday.

The bank, known as Banxico, cut for the 12th time since August 2019 this week, bringing the benchmark rate to 4%. The unanimous decision led economists to expect more easing in the coming months.

“In principle, with the expectations that we have and the projections which we have made public, I think there is space for at least two,” Esquivel said when asked if there could be more than one reduction this year.

He added that whether the cuts happen or not will depend on “reality,” such as whether inflation meets the central bank’s forecasts.

Read More: Mexico’s Unanimous Rate Cut Revives Bets of More Easing

A cut is possible in March, Esquivel said, but the board will need to be “careful” about headline inflation, which will likely spike soon due to fuel prices being compared against last year’s deep lows. “If not in March, what we’re seeing is that toward June things will return to their previous levels, the indicators will start to stabilize,” he said.

Esquivel said he didn’t think the bank should cut to 3%, which would equal the lowest rate in recent years, but that the decisions depend on various indicators.

Banxico has provided Mexico’s only significant stimulus during the coronavirus pandemic, which saw the economy plunge 8.3% last year, the worst contraction since the Great Depression of the 1930s. President Andres Manuel Lopez Obrador rejected heavy spending of the kind implemented by most of Mexico’s peers, arguing that lower debt will hasten a recovery.​

Bloomberg Economics: Unanimous Mexico Rate Cut Has Dovish Tilt

Esquivel said he is not interested in becoming governor of the bank and that he would support current chief Alejandro Diaz de Leon having his mandate renewed after his first term ends this year. “He is doing a great job,” Esquivel said. “I would happily keep working with him because he is a first-rate economist and public servant.”

The economy will grow more than 5% this year, Esquivel projects, adding that he believes Mexico will leave the pandemic “much stronger than other emerging economies” due to its low debt.

“When will the rating companies start recognizing the strength of the foundations of the country’s economy?” he asked, arguing that Mexico’s finances are on a level with countries that have better credit ratings. “We’re possibly going to be talking about an upgrade for Mexico.”

(Adds comments on March meeting, credit rating, and Diaz de Leon quote from fifth paragraph)

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