Mexican central bank lowers policy rate by 50 basis points to 4.5%

The central bank of Mexico (Banxico) announced that it lowered its benchmark interest rate by 50 basis points to 4.5% as expected. 

Key takeaways from policy statement

“Board was not unanimous on rate decision.”

“One board member voted to cut 25 basis points to 4.75%.”

“Greater conditions of the economic slack forecast with important downward risks.”

“Challenges to monetary policy by pandemic include the significant impact on economic activity and financial shock and its effect on inflation.”

“Adjustments partially associated with the pandemic have led to an increase in inflation expectations for year-end 2020.”

“The balance of risks to inflation remains uncertain.”

“Inflation expectations in the medium and long term remain relatively stable, although above the goal of 3%.”

“Available room for manoeuvre will depend on the evolution of factors that have an incidence on inflation outlook and its expectations, including effects pandemic might have on both factors.”

“Diverse indicators signal that in June there was a recovery in economic activity, although the environment remains uncertain.”

“Global and national financial conditions will continue to be principally subject to the effects of the pandemic.”

“Recent increases in the headline, core inflation affect foreseen trajectories in the short term, both are expected to lay around 3% within the 12-24 month forecast horizon.”

“Greater conditions of slack in the economy are foreseen on the horizon in which monetary policy operates, risks remain tilted downwards on the economic activity front.”

Market reaction

The USD/MXN Pair’s reaction to the policy statement was largely muted. As of writing, the pair was down 0.65% on a daily basis at 22.1969.