Mexico: Banxico lowers policy rate by 25 basis points to 4.25%

The central bank of Mexico (Banxico) announced on Thursday that it lowered its benchmark interest rate by 25 basis points to 4.25%. In its statement, Banxico noted that the board was unanimous on the rate decision, as reported by Reuters.

Key takeaways from the policy statement

“Balance of risks for the projected trajectory of inflation remains uncertain.”

“Ample slack conditions expected throughout the time frame in which monetary policy operates.”

“Headline inflation expectations for the end of 2020 rose; those for the medium and long terms remained stable at levels above 3% target.”

“Challenge for monetary policy posed by pandemic include both the significant impact on economic activity as well as a financial shock and their effects on inflation.”

“Environment of uncertainty and downward risks prevail despite the economy beginning to recover in June and July.”

“Headline and core inflation are expected to be around 3% within the 12-24 month forecast horizon.”

Market reaction

With the initial reaction, the USD/MXN pair recovered modestly from daily lows and was last seen losing 1.35% at 22.0725.