The last time the target rate was below 4% was on June 23, 2016.
The Bank of Mexico (Banxico) decided on Thursday to lower the overnight interbank interest rate target by 25 basis points to 4%.
The members of the Board of Directors of the Central Bank of Mexico have unanimously agreed to the adoption of this monetary policy decision, which Valid from Friday, February 12, to meet the priority target of keeping inflation low.
“The Governing Council will take the necessary measures (…) so that the reference rate is consistent with the orderly and sustained convergence of headline inflation towards the 3% target,” the agency said in a press release.
Why adjust the rate?
Despite the fact that Banxico has no direct control over the prices of goods and services, the agency can take measures to promote price stability.
One of the measures at its disposal is to adjust the reference rate of the country’s financial institutions, including the interest rates charged by banks
At a lower interest, the autonomous body stimulates more investment and consumption by people and companies, as credit is cheaper.
To lower the interbank rate, Banxico believed that the current environment is uncertaindespite the fact that economic activity in Mexico improved during the fourth quarter of 2020.
According to the National Institute of Statistics and Geography (Inegi), Mexico’s gross domestic product (GDP) grew 3.1% between October and December 2020 compared to the third quarter of that year. By 2021, the Ministry of Finance and State Credits estimates GDP growth to reach 4.6%.
In this regard, Banxico pointed out that the country’s annual headline inflation has fallen, from 4.09% in October 2020 to 3.54% in January 2021.
The last time the target percentage he was below 4% was the June 23, 2016, when Banxico put it in there 3.75%
Pandemic risks
However, as the agency warns, the coronavirus pandemic is a global risk that central banks must consider.
“Among the global risks persist the increase in infections, delays in the production and distribution of vaccinesBanxico explained.
In this sense, the Governor of the Bank of Mexico, Alejandro Díaz de León, indicated on January 12 that while the organization estimates a recovery of 3.3%, the national vaccination process could instill confidence and accelerate normalization in the most affected sectors, to boost economic growth by 5.3% by 2021.
The government of Mexico estimates it will be able to acquire in total by 2021 174 million doses of vaccines against covid-19 for immunize 104.6 million peopleAs of Thursday, 85,332 health workers have received the full schedule of the drug.
Since the start of the pandemic, the Latin American country has collected a total of 1,968,566 positive cases of covid-19 and 171,234 fatalities.