Reuters poll says Mexico central bank cuts key rate to lowest level since 2016

MEXICO CITY (Reuters) – Mexico’s central bank is expected to again cut its benchmark interest rate on Thursday, responding to the economic toll of the coronavirus and reduced pressure on inflation, a Reuters poll showed.

According to the survey, 19 of 21 analysts expect the bank to reduce the interbank interest rate by 50 basis points to 5.50%, which would be its lowest level since November 2016 and its eighth consecutive cut.

One analyst predicted a cut of 100 basis points, while another expected a cut of just 25 points.

By the end of 2020, the key interest rate will likely reach 4.75%, according to the median of analysts’ projections.

“We anticipate that the board of governors of the Bank of Mexico will cut the benchmark rate by 50 (basis points) to 5.50%, with the aim of promoting the proper functioning of financial markets and supporting domestic demand, in the context of weakening activity and declines inflationary pressures,” Citibanamex said in a report.

Analysts expect the Mexican economy to decline this year by as much as 10% as the coronavirus batters various sectors. Even before the coronavirus hammered local business, Mexico’s GDP fell 0.1% in 2019.

Meanwhile, Mexico’s year-on-year inflation slowed in April to its lowest level since December 2015, giving the central bank more room to continue cutting the benchmark interest rate.

Banxico, as the bank is known, cut its key rate on April 21 by 50 basis points to 6% in an off-schedule decision and took additional measures to provide liquidity to the financial system. The bank had already made a cut of 50 basis points to the key rate on March 20.

The central bank will publish its monetary policy statement on Thursday, May 14 at 1:00 p.m.(1800 GMT).

(Reporting by Miguel Gutierrez; Editing by Andrea Ricci)

Source: REUTERS