November 14, 2019 / 8:27 PM / a month ago

UPDATE 2-Mexican central bank cuts rates; downbeat on growth outlook

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MEXICO CITY, Nov 14 (Reuters) - For the third meeting in a row, Mexico’s central bank voted on Thursday to cut borrowing costs, lowering its key interest rate by 25 basis points to 7.50% and flagging that the economic growth outlook had likely worsened in recent months.

The rate cut was in line with the consensus forecast of a Reuters poll of analysts published earlier this week.

Still, two of the bank’s five-member board voted to cut the benchmark rate by 50 basis points, to 7.25%, the bank said. Two members also pushed for a 50-point rate cut when the bank last set monetary policy in late September.

“In an environment of marked uncertainty, the balance of risks for growth remain tilted downwards,” the Bank of Mexico said in a statement, adding that growth in 2019 and 2020 would likely be lower than it forecast in late August.

Then, the bank predicted the economy would grow by between 0.2% and 0.7% in 2019 and by 1.5%-2.5% in 2020.

Mexico’s economy, the second-largest in Latin America, narrowly escaped sliding into recession in the first half of 2019 and preliminary figures showed that gross domestic product inched forward by just 0.1% in the third quarter.

The stagnation meant that conditions of slack in the economy were growing more quickly than anticipated, the bank said.

Among the risks for Mexican financial assets identified by the bank were ongoing uncertainty over bilateral relations between Mexico and the United States, as well as the credit rating outlook for state oil firm Pemex and Mexico as a whole.

The bank said it was “indispensable” for Mexico to strengthen the rule of law, reduce corruption and combat lawlessness after a series of mass killings sparked by gang violence shook the government in recent weeks.

The bloodletting has caused alarm in the United States, in particular the massacre last week by suspected cartel gunmen of three mothers and six children of dual U.S.-Mexican citizenship in a remote area of northern Mexico.

The central bank has had additional room to cut interest rates because inflation has slowed in recent months and is now running at around 3%, the rate targeted by the institution.

Nevertheless, core inflation, which strips out some volatile energy and agricultural costs from the consumer price index, has been higher, and the bank noted it has been persistent. (Reporting by Mexico City Newsroom; Editing by Frank Jack Daniel, David Gregorio and Dan Grebler)

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