Mexico cuts interest rates for 11th straight time

MEXICO CITY: Mexico's central bank on Thursday reduced its key interest rate for the 11th consecutive time to bolster the pandemic-hit economy, warning of an uncertain outlook.

The Bank of Mexico cut the inter-bank rate by 25 basis points, to 4.25 percent, it said in a statement.

"An environment of uncertainty and downside risks still prevails," although the economy has begun to recover after a sharp contraction triggered by the coronavirus outbreak, it said.

The Mexican economy, the second biggest in Latin America, suffered a record 17.1 percent contraction in the second quarter of the year from the previous quarter.

The central bank warned last month that the Mexican economy is in danger of shrinking by 12.8 percent for the whole of 2020 if the pandemic worsens.

Challenges for policymakers created by the pandemic include "the significant impact on economic activity such as a financial shock and the effects on inflation," the statement said.

Mexico has registered around 75,000 coronavirus deaths -- one of the world's highest tolls.

The government introduced lockdown measures at the end of March and started gradually opening up the economy in June.

Some analysts have criticized President Andres Manuel Lopez Obrador for not spending more to boost the economy with fiscal stimulus in the face of the pandemic.

The leftist leader, known by his initials AMLO, says his priority is helping ordinary Mexicans with social aid and loans.

Analysts said that worries about rising consumer prices had deterred the central bank from lowering its key rate by more than 25 basis points this month, following a string of bigger reductions.

"Higher inflation in the third quarter prevented another large cut, but the severity of the recession forced policymakers to act, as fiscal policy remains absent," said Andres Abadia, an economist at Pantheon Macroeconomics.

"AMLO's stingy fiscal response is pushing policymakers to their limits."