Mexico Central Bank Cuts Rates as Inflation Slows

Mexico´s central bank cut its benchmark overnight rate for the first time ever, reducing it from a 29-month high after core inflation fell to a record as the economy slowed.

The Bank of Mexico, which normally adjusts rates by changing the amount it lends overnight at higher rates, did so last week by saying by how much it would allow banks to drive down the overnight rate. In a statement, the bank´s board said it would “allow an easing of monetary conditions of no more than 25 basis points.” A basis point is 0.01 percentage point.

The move reduces Mexico´s overnight loan rate to 9.5 percent from 9.75 percent, the highest since March 2003. The reduction is a step to begin reversing 12 interest-rate increases through March that slowed economic growth and inflation in Latin America´s largest economy, economists said. The peso fell.

The Bank of Mexico will gradually reduce interest rates until they reach about 9 percent by year-end, said Correa and economist Gray Newman from Morgan Stanley.

The Mexican peso fell 0.5 percent to 10.8578 against the dollar at 12:07 a.m. New York time. The decline cut the peso´s gains this year to 2.7 percent.