Banxico cuts interest rate for the first time in 5 years

The Central Bank lowered the benchmark by 25 basis points to 8%, ending the rate hike cycle. The last casualty had occurred on June 2014

The Bank of Mexico (Banxico) on Thursday cut the interest rate for the first time in more than 5 years.

The Central Bank lowered the benchmark, which was at a record high of 8.25 percent, by 25 basis points.

The decision was not unanimous, as four members voted down to 8 percent, and one did so in the sense of keeping the rate at 8.25 percent.

With this cut, the rate hike cycle that began in December 2015 ends. Since then the rate had risen by 525 basis points from 3 percent.

The last time the Bank had lowered the rate was in June 2014, when it went from 3.5 to 3 percent.

The measure is taken in a context in which inflation is within the objective range of the Central Institute of 3 percent +/- one percentage point (3.78 percent in July), and low growth of the Mexican economy, which barely advanced 0.1 percent in the second quarter of the year.

“In this context, taking into account that general inflation has decreased in accordance with the provisions of this Central Institute, the increase in the clearance greater than expected, and the recent performance of external and internal performance curves at different terms, the The Governing Board decided by a majority to decrease the objective for the Interbank Interest Rate to one day at a level of 8 percent by 25 basis points, considering that under current conditions this level is consistent with the convergence of inflation to its target in the horizon in which monetary policy operates, “the entity explained in its statement.

The Bank headed by Alejandro Díaz de León stressed the stagnation of the national economy and called on the Government to address the deterioration in the sovereign credit rating and Pemex, as well as meet the fiscal targets for 2019.

“In addition, it is important that the Economic Package for 2020 build trust. It is also essential to strengthen the rule of law, reduce corruption and combat insecurity.”

And he stressed that “monetary policy must respond with caution if for various reasons the uncertainty facing the economy rises considerably.”

The cut also occurs after the Federal Reserve reduced its interest rate by 25 basis points last month, leaving it in the range of 2 to 2.25 percent.

Since previous monetary policy meetings, Deputy Governor Gerardo Esquivel had spoken out for a rate cut.

He, along with Deputy Governor Jonathan Heath, arrived at the Bank of Mexico after being proposed by President López Obrador.

The president said on July 29 that he respects the autonomy of Banxico, but would like him to cut the rate.

“The Bank of Mexico is monitoring inflation, that’s not bad … but it’s important to lower rates to boost the economy,” he explained in an interview with John Micklethwait, chief editor of Bloomberg.

Despite the higher rate of Banxico, capitals leave the country

In the last six months, residents abroad withdrew about 8,500 million dollars from Mexican government securities due to the economic uncertainty that deprives the country.

From a sample of 37 central banks from independent countries, plus the 28-member European Union, which is followed by the Bank for International Settlements (BIS), Banxico has the third-highest nominal interest rate in the world.

Even so, in the last six months, residents abroad withdrew about 8,500 million dollars from Mexican government securities due to the economic uncertainty that it deprives in the country, according to Reforma .

In the BIS sample, the reference rate of Banxico, of 8.25% nominal, is only exceeded by that of Argentina, of 63.71 /, and that of Turkey, of 19.75%.

These economies suffer from runaway inflation, 55.8% year-on-year in the case of the South American country and 19.50% in Turkey, hence their central banks maintain such high reference interest rates.

According to Reforma, this is not the case in Mexico, whose price growth has already dropped to 3.78% annually in July, and given the inflation outlook, its real rate is around 4.50%, the highest among the countries in the sample of the BIS.

With data from last July, in a list of short-term interest rates in 41 countries, the OECD shows Mexico with the highest, at 8.45%.

Source: el financiero, forbes mx

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