Banxico cuts interbank rate as the coronavirus crisis deepens

For the second time in a row, Mexico’s central bank (Banxico) has operated out of the schedule to cut the benchmark rate by 50 basis points to reach 6% .

“Considering the risks derived from the COVID-19 pandemic for inflation, the economic activity and the financial markets are facing important challenges for the monetary policy and economy in general,” as explained by Banxico in a statement.

Mexico’s central bank said that given the forecast impact, it unanimously decided, with the presence of all of its members, to decrease by 50 basis points the objective for interbank rate to 6%.

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Moreover, Banxico decided to implement additional measures to promote an orderly behavior of financial markets, strengthen the credit lines, and promote liquidity for the healthy development of the financial system .

Banxico warned that the impact over the national economy caused by the pandemic will lead to an important contraction of the economic activity in the country during the first semester of 2020.

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It established that the size and span of the effects derived from the pandemic are still unknown since the available information is still limited, however, initial projections suggest that GDP in the first semester of 2020 could shrink over 5% compared to the same period in 2019.

“Hence, it is clear that slack conditions are significantly increasing in a context in which the balance of risks for growth has a downward bias ,” Banxico said.

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