Mexico's central bank cut its key interest rate by 25 basis points last week to 8 percent from a 10-year high. This was the first rate cut in five years and the move has significance for a couple of reasons.
There was no sign of Mexico cutting rates until July. The Bank of Mexico, known as Banxico, had raised rates 15 times over the past three years because of high inflationary pressures and weakening of the Mexican peso. The central bank's decision to switch gears into monetary easing mode transpired rather suddenly. It was a split 4 – 1 decision, so clearly not a slam dunk either.
It's a similar story with the U.S. Federal Reserve, where the central bank may have given in to market and political pressures. The financial market started to warm up to the rate-cut idea in July after the Fed turned dovish. Late last month, Mexico's President Andres Manuel Lopez Obrador said that while he respects the central bank's independence, he'd also like to see Mexico cut rates to boost growth.
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