June 25, 2020 / 6:39 PM / a month ago

UPDATE 2-Mexican central bank cuts interest rates to lowest level since 2016

(Adds central bank’s comments, background on economy)

MEXICO CITY, June 25 (Reuters) - Mexico’s central bank on Thursday cut its benchmark interest rate to the lowest level in nearly four years, citing worries about growth and an uncertain outlook as the coronavirus pandemic ravages Latin America’s second-largest economy.

In a unanimous decision by its five-member board, the Bank of Mexico reduced the key interest rate by 50 basis points to 5.00%, the lowest level since September 2016.

The cut was in line with analysts’ expectations in a Reuters poll.

Mexico’s economy has been hammered by the pandemic, with the International Monetary Fund (IMF) predicting the country’s gross domestic product could shrink by up to 10.5% this year, in what would be its biggest decline since the 1930s.

Banxico, as Mexico’s central bank is known, said “the balance of risks for growth remains significantly biased to the downside.” It also said it saw stable inflation in the short term.

The bank said inflation could end up close to its 3% target in 2020, and that it sees headline inflation for the medium and long term relatively stable, but “at levels above 3%.”

But the overall inflation outlook remains “uncertain,” the bank added.

Banxico added that it “will take the necessary actions” in the face of incoming data and the economic shock faced by the country to ensure its policy rate is consistent with the orderly and sustained convergence of headline inflation to its target. (Reporting by Mexico City Newsroom; Editing by Frank Jack Daniel and Paul Simao)

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