The Strategist

Bank of Mexico announces 5% base rate cut

06/26/2020 - 06:40

The Board of Governors of the Bank of Mexico announced the fourth drop in the interbank interest rate to 5% this year amid the unfolding crisis caused by the COVID-19 pandemic.

Matthew Rutledge via flickr
Matthew Rutledge via flickr
"Given the risks to inflation, economic activity and financial markets, serious challenges are expected for monetary policy and the economy as a whole... In the presence of all its members, the Governing Council unanimously decided to lower the target for the interbank overnight interest rate by 50 basis points to 5% ", - the Bank of Mexico said in a message.

The bank’s economists pointed to a significant decline in economic activity in the first quarter, as well as signs of an even more serious fall in April. In their opinion, despite the resumption of some activity in May and June, forecasts remain uncertain.

Earlier in 2020, the Bank of Mexico thrice cut the interest rate by 50 basis points - on March 20, April 21 and May 15. Participants of the financial market called these measures expected and consistent with global practice in a recession.

Experts from the International Monetary Fund believe that Mexico’s economy will suffer a 10.5% reduction this year due to the serious economic consequences of the COVID-19 pandemic. In April, the IMF forecast said it would decrease by 6.6%.