Mexico Cuts Rates 50bps In Surprise Move, Warns Of GDP Plunge

In a unanimous decision, Banxico’s board surprised the market and lowered the reference rate by 50bps to 6% in the face of a widely-expected recession in the country this year (which it now expects to be a 1H 2020 drop of more than 5% YoY).

“It is estimated that the negative effects on domestic economic activity resulting from the pandemic may lead to an important contraction of economic activity in Mexico during the first half of the year. Although the magnitude and duration of the effects of the pandemic are still unknown, and since available information is still limited, initial estimates suggest that during the first half of 2020 GDP could fall more than 5% as compared to the same period of the previous year. It is clear that slack conditions are widening considerably, in a context in which the balance of risks for growth is significantly biased to the downside

 

According to the statement.

“Considering the risks resulting from the COVID-19 pandemic for inflation, economic activity and financial markets, major challenges arise for monetary policy and for the economy in general.”

Very little reaction for now in the peso…

Though warnings of “implementing additional measures for orderly markets” may prompt some more selling soon…

“The Governing Board also decided to implement additional measures to foster an orderly behavior of financial markets, strengthen the credit channels and provide liquidity for the sound development of the financial system.”