Banco de México Cuts Rates as Mexican Economy Risks Remain To Downside

The Mexican Central Bank, Banco de México cut interest rates as expected. The bank sees lower GDP growth and CPI in 2019 and 2020 in an underperforming economy and widening output gap.

Goldman Sachs say that Banco de México, Mexico’s central bank may respond with a surprise rate cut They cite an underperforming economy, cost of border protection and widening output gap.

mexico central bank

The Mexico central bank cut rates 25 basis points The Mexico central banks cut the overnight rate to 7.5% from 7.75%. The cut was expected , however two members did vote for a 50 basis point cut

The bank sees 2019, 2020 growth lower than previously forecast and reiterates a prudent monetary position, Sees the balance of risks to growth still wth bias toward downside.

The central bank sees risks remain and  CPI could deviate from forecasts core inflation has been persistently high CPI may be slightly below previous forecasts

USMCA Update

There are reports the USMCA could be sent to Capitol Hill in the coming days.

In a statement Wednesday, Linda Dempsey, vice president of international economic affairs policy at the National Association of Manufacturers, said, “American workers benefit from a strong, modernized trade relationship with Canada and Mexico.”

At the same time, top U.S. labor unions have urged Congress to oppose the deal as it stands now. They have voiced concerns that it will not go far enough to stop companies from shipping jobs to Mexico. For instance, the AFL-CIO’s executive council said in a September statement that without changes, “the new NAFTA would do little to stop the continued outsourcing of jobs in a wide range of industries.”

Mexico has already ratified the trade agreement. Canada has not yet approved it.

Reasons to cut are numerous

  • Economy underperforming
  • Output gap widening
  • Signs of a damaged jobs market

The new deal on immigration earlier in the year with the US adds costs for Mexico such as border protection and housing and feeding asylum seekers. There is also the potential potential political cost and lower rats may alleviate some of that.

From The Traders Community News Desk

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