Mexico central bank seen cutting rates 50 basis points, inflation forecast to tick up

06/22/2020 | 02:45 pm

Mexico's central bank will likely cut its key interest rate again later this week to alleviate the impact of the coronavirus pandemic on the economy, a Reuters poll showed Monday.

A separate Reuters survey showed that prices pressures in Mexico probably picked up slightly in early June.

Some 26 of 27 analysts polled predicted the Bank of Mexico's board would cut the benchmark interest rate by 50 basis points to 5.00% when it meets for its next monetary policy meeting on Thursday. One forecast a cut of 25 points. <MXCBIR=ECI>

Reducing the rate to 5.00% would take it to the lowest level since September 2016 and mark a ninth consecutive cut.

By the end of 2020, the median forecast of analysts was for the key rate to be 4.50%. That was below a year-end prediction for 4.75% made in the previous monetary policy survey in May.

Mexico entered a recession in 2019 and the economy is expected to shrink by up to 10% or more this year. Industrial output suffered a record contraction in April, declining by more than 25% compared to the previous month.

Further bolstering the case for a rate cut is the fact inflation remains below the central bank's 3% target. In May, the rate picked up less than forecast to 2.84%.

Nevertheless, cost pressures may be building, as the median forecast of 18 analysts polled on inflation was that it probably accelerated to 3.05% in the first half of June.

National statistics agency INEGI is scheduled to publish the latest inflation figures on Wednesday morning.

The central bank is due to publish its latest monetary policy decision on Thursday at 1300 local time (1800 GMT).

(Reporting by Miguel Angel Gutierrez in Mexico City and Gabriel Burin in Buenos Aires; Editing by Nick Zieminski and Grant McCool)

Thomson Reuters 2020
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