MEXICO CITY (Reuters) – Mexico’s central bank on Thursday again lowered borrowing costs to help stimulate the economy battered by the coronavirus pandemic, but reduced the pace of the cuts to a quarter of a percentage point in an environment of higher inflation.
The Bank of Mexico, known locally as Banxico, said the rate-setting board unanimously agreed to trim the benchmark rate by 0.25 basis points to 4.25%, for what was its 11th consecutive cut since August 2019.
For the past five rates decisions, the bank cut by 50 basis points as the economy plummeted during measures to contain the pandemic.
On Thursday, the bank said described uncertainty and downside risks despite the economy beginning to recover in June and July.
Banxico, in a statement, highlighted continued risks to inflation, economic activity, and a possible financial shock from the coronavirus pandemic that is expected to cause the biggest recession in Mexico since the 1930s.
Despite recent rises in headline and core inflation to around 4%, the bank said it foresaw a “stable” inflationary outlook at above 3% in the medium and long term. But it caveated those predictions by saying the balance of risks for inflation trajectory remain uncertain.
“Taking into account the referred risks for inflation, economic activity and financial markets, major challenges arise for monetary policy and for the economy in general,” the bank said.
Banxico’s rate-setters acted due to the inflation outlook and what it called “narrow” room for maneuver, the bank said.
The central bank added it would take “all necessary actions” in the future based on new information and considering the large impact on productivity by the pandemic, as well as the “evolution of the financial shock that we are currently facing.”
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