Mexico’s central bank (BdeM) is set to release an interest rate decision today. Given that the BdeM has slashed rates
Mexico’s central bank (BdeM) is set to release an interest rate decision today.
Given that the BdeM has slashed rates in each of its last nine meetings, analysts expect the benchmark to be cut again by 50 basis points to a four-year low of 4.5%. Resultant inflation has risen to 3.62%—its highest level in five months—but still lies within the bank’s 2020 target range of 2-4%.
The Mexican economy entered a mild recession in 2019, which was exacerbated by the lockdowns imposed due to COVID-19. The country is currently battling the world’s third worst outbreak in terms of fatalities, with its 58,000 deaths surpassed only by Brazil and the US. The domestic fatality rate accelerated substantially after President Lopez Obrador, pressured by deep economic ties with the US, started to ease restrictions in early June.
Recent BdeM statements suggest that runaway inflation is not an immediate concern and that the current economic outlook may necessitate further reductions. Given recent signs of improvement—particularly with regards to industrial production—expect the BdeM to continue its rate-cutting trend in the short-term to bolster the Mexican economy. Nevertheless, the nation is predicted to suffer a 2020 contraction of 10.5%—its biggest drop since the 1930s—as Lopez Obrador remains opposed to wide-ranging government stimulus.
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