Mexico joins with other countries in cutting interest rates with the economic slowdown. The central bank of Mexico (Banxico) has cut interest rates by 25 basis points on Thursday. This brings it to 8.00 percent. The rate cut has been made to curb declining inflation and to provide stimulus into the economy.
Mexico had cut interest rates last time on June 2014. In December 2015, interest rates were modified and changed from 3.5 percent to 3 percent. Analysts had expected the Bank of Mexico to hold interest rates at 8.25 percent which has been maintained for many months. The country has been witnessing weakness in domestic growth and a decline in inflation. With low growth, the Mexican economy has inflation at 3 percent, but within the range of its central bank. But for the second quarter, it has advanced 0.1 percent showing a slowdown in growth.
The IMF has lowered GDP growth for Mexico at 0.9 percent. This is much lower than the earlier estimate which was stated at 1.6 percent. Bank of Mexico under the leadership of Governor Alejandro Diaz de Leon, had a vote of 4 to 1 to bring down interest rates to 8 percent, from its 10-year high. Further rate cuts may also occur, he says. President Andres Manuel Lopez Obrador had stated last month that he would like to see a rate cut. He had broken his silence and moved from his non-intervening stance to make the statement in favor of a rate cut.
The peso which was trading at 19.6038 per dollar went to 19.6756 yesterday in Mexico at 2:12 p.m. The performance of the yield curve, the slack in the economy and slow inflation are the reasons for the easing of interest rates, says the Central Bank of Mexico. Policymakers have also added that they would take prudent and swift action if there are any risks in reaching the required inflation levels.