Mexico´s Central Bank Reduces Rates Once Again to Boost Economy

Mexico´s central bank reduced its benchmark lending rate for a second time in as many months to help jumpstart the economy.

The Bank of Mexico cut the overnight rate to 9.25 percent from 9.50 percent after a reduction of 0.25 percentage point last month. In a statement, the board led by Governor Guillermo Ortiz said economic growth was slowing, particularly in industrial output, and the inflation outlook had improved.

Mexico´s inflation is on pace to reach the bank´s 3 percent target next year for the first time, Finance Minister Francisco Gil Diaz said today, predicting the central bank could reduce the overnight rate to 8.5 percent by year-end. Annual inflation slowed to a record 3.95 percent in August.

As inflation slows, the Mexican central bank is starting to reverse 12 rate increases through March that pushed up the overnight lending rate to a 29-month high of 9.75 percent in May, helping slow the economy. The overnight rate was as low as 4 percent in August 2003.

Mexico´s economy grew 2.8 percent in the first half after a 4.4 percent expansion in all of 2004. After Hurricane Katrina hit the Gulf of Mexico on Aug. 29 and sent fuel prices surging, the central bank reduced its growth forecast for this year to about 3 percent from as much as 3.75 percent.