MEXICO CITY (Reuters) – Mexico’s central bank on Thursday cut interest rates for the first time since September, expressing uncertainty about the economic outlook and global efforts to tackle the COVID-19 pandemic.
Hit by the pandemic, Mexico ‘s economy last year suffered its biggest recession since the Great Depression of the 1930s, declining by 8.5%, according to preliminary data.
Five Bank of Mexico (Banxico) board members voted unanimously to reduce loan costs by 25 basis points to 4%, according to a Reuters polling consensus forecast of economists earlier in the week.
Banxico, which had kept rates unchanged at its last two meetings, said the balance of risks for inflation was uncertain, as was the outlook for economic activity. Risks for the economy have plummeted, with many blows, he said.
“There are global risks, including an increase in viral infections, delays in vaccine production and circulation, the appropriateness of fiscal stimuli, and other tensions,” the bank said in a statement with its decision.
Banxico said it expects headline inflation, which stood at 3.54% in January, to move higher in the second quarter.
“Key inflation expectations at the end of 2021 have changed slightly upwards, with medium and long-term stays stable at levels above the 3% target,” he said.
The bank is aiming for 3% inflation, and has a tolerance range of 1 percentage point above or below that.
Thursday’s decision was the first to introduce the new board member Galia Borja, who was an official in finance ministry.
Nikhil Sanghani, a Latin American economist at Capital Economics, said the latest decision suggested a dovish stance with Banxico rate makers, and raised the possibility of a further rate cut at the next meeting at the end of March.
“That said, we suspect policymakers will refrain from further easing,” Sanghani said, noting that a temporary jump in inflation could prevent Banxico from declining. standards.
Reporting by Dave Graham in Mexico City; Edited by Drazen Jorgic and Matthew Lewis