Bank of Mexico to release interest rate decision

Mexico’s central bank (BdeM) is set to release an interest rate decision today.

The bank has slashed rates in its last ten meetings, making it likely that BdeM will institute a further rate cut of 25 basis points, yielding an interest rate of 4.25%. In the last meeting, there was dissent regarding the size of further rate cuts, increasing the likelihood that BdeM will slow cuts in the near future.

The slowing rate cut reflects concern over high inflation, especially the 4.05% year-on-year inflation reported in August. Proponents of further rate cuts argue that the Mexican economy needs further rate cuts to recover quickly, given a GDP drop of 17.1% in the April-June period.

President Andrés Manuel López Obrador has refused to borrow to support the Mexican economy. He has consistently insisted that no such stimulus is needed, arguing that direct support to those in need is more effective. While the economy has shown signs of recovery, with an 8.9% increase in economic activity in June, López Obrador’s actions have caused a large drop in support for his presidency, down to 56%. The lack of widespread stimulus has increased projections for economic contraction for 2020, from 10.5% to 13%, which could further erode support for the president.

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