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Business & Finance

Mexican central bank sees inflation cooling, hard road for economy

  • Central bank reduced its key interest rate by 25 basis points to 4.25%.
  • All members pointed out that inflation is anticipated to converge to the target in the horizon in which monetary policy operates.
09 Oct 2020

MEXICO CITY: Mexico's central bank expects inflation to move toward its 3% goal as the economy battles through a long, complex recovery from the coronavirus pandemic, minutes from its latest policy meeting released on Thursday showed.

On Sept. 24, the central bank reduced its key interest rate by 25 basis points to 4.25%, signaling a slowdown in cuts and feeding expectations the bank could pause.

Most board members expect the recovery to be long, difficult and uncertain as investment and consumption remain weak and unemployment high, the minutes showed.

"All members pointed out that inflation is anticipated to converge to the target in the horizon in which monetary policy operates," the bank said, noting that some still consider the balance of risk for inflation uncertain.

"Most members considered that inflation has continued to be affected by the pandemic, which has implied supply and demand shocks, thus contributing to a recomposition in relative prices," the minutes showed.

Headline inflation ran at 4.05% in August, but unexpectedly eased to 4.01% in September.

The pandemic has plunged Latin America's second-largest economy into its sharpest recession in decades, making the growth outlook a major worry for policymakers.

Most board members also expressed concerns over the debt of state oil company Petroleos Mexicanos, or Pemex, and highlighted an "unfavorable environment" for private investment.