Economy

Mexico's central bank cuts benchmark rate for the fourth time in a row, to 7.25%

Banxico's decision was already expected by the market

mexican peso
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  • Banxico also reduced the country’s growth projection this year, to something between a 0.2% contraction and a 0.2% expansion;
  • The IMF forecast, revised in October, points out for a 0.4% growth.

The Central Bank of Mexico, Banxico, announced the fourth consecutive cut in the country’s benchmark interest rate, now at 7.25% per year. The decision was already expected by the market. Lower rates tend to increase consumption and credit and thus revive the economy.

With low inflation (2.97% in November) and a shrinking economy for three straight quarters, Mexico could end the year in recession.

Banxico also reduced the country’s growth projection this year, which could be between a 0.2% contraction and a 0.2% expansion. The IMF forecast, revised in October, points out to a 0.4% growth.

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In its post-decision statement, Banxico took a cautious tone. While mitigating risks of further downturn due to the renewal of the free trade treaty between Mexico, the United States and Canada, it also indicated that 2020 will have other pressure points, such as the 20% increase in the Mexican minimum wage. According to the monetary authority, this correction may “lead to wage increases above productivity gains in different segments of the employed population and this generates cost pressures that affect formal employment and prices.”

For 2020, Banxico’s forecast is for the economy to grow between 0.8% and 1.8%.