There is a possibility that the central bank of Mexico will further cut interest rates, says a recent article. The basis for this prediction is that some of its governing board members are supporting deeper reductions in borrowing costs. This aims to shield the Mexican economy from the intense shock brought by the coronavirus crisis, revealed from the minutes of its policy meeting released on Tuesday.


The Votes

All five of the Bank of Mexico's board members had unanimously voted to reduce the interest rate for overnight interbank transactions by 50 basis points to six percent during an out-of-cycle meeting conducting on April 21. Additionally, the central bank revealed more or less $31 billion in support of the financial system. It aims to provide aid to the Mexican economy amid the COVID-19 pandemic.


Lower the Policy Rate

One board member suggested to significantly reduce the policy rate to set the real interest rate below its neutral level in the soonest time possible. This includes the shifting to a real rate near zero or even in negative territory, says in the minutes of the meeting.

According to a research report by Morgan Stanley, regardless of the unanimous decision, the minutes of the meeting reveals that the board members' views are not homogenous. As most of the board members show prudence in the easing process despite the risk of credit rating downgrades and a fiscal deterioration, some views are on the side of getting faster into a monetary policy expansionary stance.


The Upcoming May 14 Meeting

Morgan Stanly is expecting a 50-basis-point cut again in the upcoming policy meeting, which will be held on May 14. Alberto Ramos, Goldman Sachs economist, stated that he is expecting that the central bank of Mexico will be driving the policy rate to 4.5 percent by the end of the year.


Mexican Economy Amid COVID-19

The economy of Mexico is facing a unique shock in the coronavirus pandemic. Events such as the downgrades on credit ratings of Pemex are making the current economic standing of the country even worst, says in the minutes of the meeting.

The majority of the board members of the Bank of Mexico had released a warning about the adverse environment of the local economy is facing due to the current pandemic caused by the novel coronavirus and the lowering of the prices of oil, the minutes of the meeting said.


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Contracting in the First Half of the Year

It was revealed by all of the board members that the economic activity in Mexico is expected to contract during the first half of 2020 significantly. Also, they stated that the duration and magnitude of the effects brought by the COVID-19 pandemic are still not known. Despite this, the pandemic's economic impact is becoming more visible in the economy of the country, says minutes of the meeting.