Mexico Central Bank Cuts Key Rate To 10.75%

(RTTNews) - Banco de Mexico slashed its key interest rate on Thursday, as majority of policymakers assessed that inflationary pressures are likely to ease in future.

The five-member Governing Board decided to lower the target for the overnight interbank interest rate by 25 basis points to 10.75 percent, the central bank said in a statement.

Economists had widely expected Banxico to leave the rate unchanged this month.

The key interest rate was cut for the first time in three policy sessions. The previous change was a quarter-point reduction in March.

Governor Victoria Rodriguez and deputy governors Galia Borja, and Omar Mejia voted in favor of cutting the rate.

Deputy governors Irene Espinosa and Jonathan Heath sought to leave the rate unchanged at 11 percent.

Official data released earlier on Thursday showed that headline inflation accelerated to a 14-month high of 5.57 percent in July, while core inflation eased further to 4.05 percent.

"Looking ahead, the Board foresees that the inflationary environment may allow for discussing reference rate adjustments," the central bank said.

Capital Economics economist Liam Peach pointed out that the central bank repeated its guidance that Banxico sees scope for "discussing reference rate adjustments".

This suggest that the balance of factors supports further cuts over the rest of the year, but the easing cycle is likely to remain slow and gradual, the economist said.

"Our forecast is for rates to end this year at 10.00 percent and next year at 8.00 percent, which is a touch higher than the latest consensus forecast," Peach added.