Mexico’s central bank cuts benchmark interest rate to 4.25%

After five consecutive times of cutting half a point and after an economic improvement, Mexico’s central bank (Banxico) informed it reduced the interest benchmark rate by 25 basis points down to 4.25%

In its announcement, Banxico said that its governing board unanimously decided to reduce the objective for the interbank rate by a quarter of a point.

With this decision, the interest rate, which was in 4.5 since August 13, 2020, went down to 4.25%.

Banxico acknowledged that after a deeper contraction in April and May, Mexico’s economic activity began recovering in June and July although there is still an environment of uncertainty and downward trend risks.

Recommended: 

Meanwhile, forecasts for general inflation by the end of 2020 have increased.

Banxico said that considering the risks regarding inflation, the economic activities and financial markets are facing major challenges for monetary policy and economy in general.

During the first fortnight of September, inflation remained over 4% of the annual rate, over the Banxico’s top target range, according to the most recent data revealed by the National Institute of Statistics and Geography.

The National Index for Consumer Prices (INPC) presented a 0.16% rise in the first fortnight of September compared to the immediate previous fortnight, as well as annual inflation of 4.1%.

The good and services whose price hike had a direct impact in inflation include onion, with a fortnight increase of 23.55%, eateries with 0.32%, vehicles with 0.73%, elementary schools with 2.42%, serrano pepper with 12.37%, lime with 7.66%, electricity with 0.68%, low octane gasoline with 0.16%, and water supply with 0.78%.

On the other hand, the goods and services whose low prices helped contain inflation were tomatoes with -7.94%, professional services with -13.75%, eggs with -2.28%, avocados with -5.04, oranges with -6.58%, domestic gas with -0.58%, bananas with -3.34%, beer with -0.50%, body lotion with -1.92%, and diapers with -0.95%.

The states that reported a higher surge in prices during the first fortnight of September were Coahuila (0.61%), San Luis Potosí and Sonora (0.44%), Mexico City (0.25%), and Durango (0.23%).

On the other hand, the states with lower prices were Tlaxcala (-0.29%), Campeche (-0.12%), Veracruz (-0.05%), and Oaxaca and Nayarit (-0.04%).

The underlying prices index, which does not include good and services whose prices are more volatile, had a fortnight increase of 0.17% and an annual increase of 3.99%; for its part, the non-underlying prices index had a fortnight increase of 0.15% and an annual increase of 4.44%.

Within the underlying prices index, the price of goods had a fortnight rise of 0.16% and 0.17%.

Within the non-underlying prices index, prices of farming products had a fortnight increase of 0.17% while energetic products and rates authorized by the government rose by 0.14%.

mp