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Mexico’s central bank reduced borrowing costs for the first time in five years after inflation slowed, the economy faltered and the U.S. cut its own rate.
Led by Governor Alejandro Diaz de Leon, the bank lowered rates a quarter point to 8% from a ten-year high. The decision was forecast by 14 of 31 economists surveyed by Bloomberg. Sixteen saw rates on hold, while one analyst predicted a half-point reduction.
Investors were also split on which way the central bank would swing after the five-member board showed divisions in its previous decision in June. Two members had expressed a dovish stance, while the majority raised concerns about high core inflation and a deeply uncertain global environment. Then, last month, President Andres Manuel Lopez Obrador broke from his strict non-interventionist stance to tell Bloomberg he’d like to see a rate cut.
“The board is concerned about moving away from the recent wave of cuts by central banks,” Marco Oviedo, chief Latin America economist at Barclays (LON:BARC) Plc, said before the rate decision. “They’re also worried about the weak economy and external risks of recession.”
Investors were leaning slightly toward easing as forecast by interest-rate swaps. Their argument went: the 3.78% inflation rate is the lowest in 30 months, the economy narrowly dodged recession in the second quarter and in addition to the Fed, Brazil and Chile just lowered borrowing costs.
Naysayers warned that 3.82% core inflation remains high, trade war risks with the U.S. abound and Argentina’s assets just fell off a cliff after a primary election stoked concern South America’s second-biggest economy will return to populist policies.