Daily Management Review

The Bank of Mexico lowers interbank rate for the third time in 2020


The Board of Governors of the Bank of Mexico announced the next market-expected decrease in the interbank interest rate to 5.5% amid the unfolding crisis caused by the COVID-19 pandemic.

Matthew Rutledge
Matthew Rutledge
“Monetary policy and the economy as a whole are facing serious challenges. Given the expected negative effects and the space that they leave for (correction) of monetary policy, with the presence of all its members, the Governing Council unanimously decided to lower the target for an interbank overnight interest rate of 50 basis points to a level of 5.5%,” the message on the Bank of Mexico website says.

Bank economists, in addition to stopping the economy due to the COVID-19 pandemic and the financial shock faced by the regulator, pointed out the risks for the planned reduction in inflation. Despite the decline in March-April of the total annual inflation rate from 3.25% to 2.15%, "the balance of risks remains uncertain."

Earlier in 2020, the Bank of Mexico twice reduced the interest rate by 50 basis points – on March 20 and April 21. Financial market participants called these measures expected and consistent with global practice in a recession.

In early April, the Mexican Ministry of Finance announced that it expects a 2020 range for GDP growth from 0.1 to - 3.9%, explaining this by a difficult epidemiological situation, supply chain disruptions and falling demand and oil prices. According to the estimates of large investment banks, the decline may be from 4 to 10% of GDP.

source: reuters.com