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Mexico’s central bank, Banxico, cut its policy rate by 50 basis points to 5% on Thursday. In its policy statement, Banxico noted that the balance of risks to growth was significantly tilted downwards.

Key takeaways

“Balance of risks for inflation remains uncertain.”

“Expectations for headline inflation for end 2020 still at levels close to the target.”

“Expectations for headline inflation for medium, long-term have remained relatively stable, but at levels above 3% target.”

“Upside risks to inflation include additional depreciation in forex.”

“Economic activity contracted significantly during the first quarter, available information indicates the impact of pandemic intensified in April.”

“Other upside risks to inflation include logistical problems in the supply of certain goods and services linked to the pandemic.”

“Reopening of some economic sectors in May, June will foster a slight recovery of economic activity, but the impact has been of considerable magnitude, uncertainty persists.”

Market reaction

The USD/MXN pair edged slightly higher on this announcement and was last seen trading at 22.7600, where it was virtually unchanged on a daily basis.