Banco de Mexico cuts overnight rate 50 bps to 4¾% as economy contracts

By Richard Connell

New York, June 19 - The Board of Governors of the Banco de Mexico cut its interbank one-day overnight interest rate by 50 basis points to 4¾% at its meeting on Friday, according to a news release issued by the bank.

The board noted that despite the perception that the international financial situation had started to recover, industrial output from the United States and euro-zone countries has continued to show weakness.

In Mexico, the contraction in economic activity in the first half of the year has been extreme, reflected primarily by reduced exports in the durable goods and automotive sectors.

The board also pointed out that the H1N1 virus has continued to affect the economy negatively but that its impact was lessening.

Inflation continued to decline in accordance with earlier projections, and the board forecast that it would fall to the target level of 3% by 2010.

Despite cutting the interest rate by 50 bps, the board cautioned that the cycle of easing of policy was near its completion and any future cuts made may be smaller.

The board has cut the interest rate at six straight meetings since January, by a total of 300 bps.

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