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Mexico Cuts Key Interest Rate for Third Straight Time

Nacha Cattan
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Mexico Cuts Key Interest Rate for Third Straight Time

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Mexico’s central bank cut the benchmark interest rate in a split vote among board members after inflation slowed to target and growth stumbled.

The central bank, led by Governor Alejandro Diaz de Leon, voted 3-2 to reduce the key rate by a quarter point to 7.50%, in line with the estimate of 17 of 26 economists surveyed by Bloomberg. The other two board members sought a half-point cut to 7.25%, in line with nine economists’ forecasts.

Banxico, as the central bank is known, has every reason to extend its easing cycle, according to economists, amid very subdued inflation and growth and a stable peso. The only debate is over how quickly and how extensively it will cut, and today’s quarter-point reduction points to a more conservative stance.

“They’re being prudent,” said Marco Oviedo, chief Latin America economist at Barclays. “The discussion isn’t about whether to cut but by how quickly.” Oviedo sees another rate reduction in December.

Banxico said in the statement accompanying its decision that both inflation and growth for this year and next will likely be below previous forecasts, although core inflation has remained persistent.

Interest rate cuts may be more important than ever now, as Mexican growth continues to disappoint both investors and the nation’s president. Andres Manuel Lopez Obrador has brandished the strong peso as a weapon against critics who worry he’s scaring investors. But an easing cycle that weakens the exchange rate and makes exports more attractive could help Mexico’s economy even more.

“Banxico is being relatively dovish and signaling it will keep cutting rates, but in a cautious manner,” Delia Paredes, an economist at Grupo Financiero Banorte, said before the decision.

In the previous decision, board members Gerardo Esquivel and Jonathan Heath, both nominated by Lopez Obrador, had voted for a deeper half-point cut than the majority.

(Updates with analyst comment starting in fourth paragraph.)

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, ;Juan Pablo Spinetto at jspinetto@bloomberg.net, Robert Jameson

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