Governor of the Bank of Mexico Suggests 11 Consecutive Interest Rate Cuts

[Asia Economy Reporter Joselgina] Alejandro Diaz de Leon, Governor of the Bank of Mexico (Banxico), which has continued a streak of 10 consecutive interest rate cuts, stated that the central bank may lower interest rates once again at the upcoming monetary policy meeting next month. Banxico expects Mexico's real economic growth rate in 2020 could fall as low as -12.8% in the worst-case scenario.

In an interview with the Nihon Keizai Shimbun published on the 27th, Governor Diaz de Leon said, "(The September meeting) will be a difficult meeting." He added, "We consider many factors such as inflation to determine how much room there is for monetary policy," suggesting the possibility of an 11th consecutive rate cut.

The day before, the central bank announced its 2020 real economic growth forecast to be between -8.8% and -12.8%. If realized, this would represent the worst economic downturn since the Great Depression, approaching the -14.8% recorded in 1932. This is a further deterioration from the -4.6% to -8.8% forecast announced in May. It is interpreted that the direct impact of the novel coronavirus disease (COVID-19) has affected the overall economy more severely than expected.

Governor Diaz de Leon argued that attracting foreign investment is necessary for the Mexican economy to enter a sustained recovery path. The Nihon Keizai Shimbun added that this view subtly differs from that of President Andres Manuel Lopez Obrador (AMLO).

When asked whether more government policies for economic stimulus are needed, he responded, "Basically, I think so," emphasizing that economic stimulus is difficult to achieve through monetary policy alone. This effectively calls for an expansionary fiscal policy. The International Monetary Fund (IMF) analyzed that Mexico's fiscal measures in response to COVID-19 are the smallest among G20 countries.

As concerns over economic recession intensified, the Bank of Mexico lowered interest rates from 8.25% in August last year to 8%, marking the first cut in five years, and has since cut rates 10 consecutive times. The current benchmark interest rate of 4.5% is the lowest level since September 2016. The total reduction amounts to 3.75 percentage points.

Earlier, when Mexico's consumer price inflation rate in July reached 3.62%, the highest since February, some speculated that the streak of rate cuts would soon end. In August, inflation rose to 3.99%, approaching the benchmark interest rate level. The Nihon Keizai Shimbun added that when the inflation rate exceeds the benchmark interest rate, it results in a real negative interest rate, making policy decisions more difficult.

This content was produced with the assistance of AI translation services.