Banco de México highlighted that in the face of the coronavirus pandemic and the measures adopted to prevent its spread, they have considerably affected world economic activity.
“This has led to unprecedented revisions to economic expectations, which incorporate a sharp contraction in productive activity in 2020. This in turn has led to a marked decrease in the prices of raw materials, especially oil,” he explained. .
The statement adds that the magnitude and duration of the effects caused by the pandemic are still unknown, but it is anticipated that they will deepen in the second quarter and lead to significant contractions in employment.
Among the future challenges that the Bank of Mexico sees for the Mexican economy, the significant expansion in the negative output gap and the effects of the reduction in energy prices stand out. It also considers that the risk balance of inflation is still uncertain.
“As for the risks to the expected trajectory of inflation, the significant expansion in the negative output gap and the effects of the reduction in energy prices stand out. On the upside, the depreciation of the exchange rate is greater or more persistent, as well as possible disruptions in the production and distribution chains of some goods and services, “said the central bank.
According to the Citibanamex Survey, by the end of 2020, the median indicates that the reference rate will continue to drop to 4.75% and would close next year at 4.5%, its lowest level since June 2016; however, analysts at BBVA México expect it to drop to 3%, a level not seen since mid-2014.
Banco de México cut its benchmark rate by 50 basis points to 6% on April 21, in an off-calendar decision and issued additional support measures to provide liquidity to the financial system. Banxico had already cut the key rate early, also by 50 basis points, on March 20.
Globally, Mexico is the second country with the highest real interest rate (adjusted for inflation) with 3.85%, after Ukraine with 5.9%. Egypt follows with 3.35%. Japan, Switzerland, Denmark and the euro area have negative nominal rates.
– Gabriela Siller (@GabySillerP)
May 14, 2020