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Mexico’s President Calls on Central Bank to Keep Cutting Rates

Mexico’s President Calls on Central Bank to Keep Cutting Rates

Mexico’s President Andres Manuel Lopez Obrador said on Friday that the central bank needs to cut interest rates further to help reactivate the economy, even as a spike in inflation is slowing an easing cycle and may end it altogether.

Lopez Obrador was responding to comments from the country’s banking lobby, which said many people don’t want to borrow money because they’re concerned about spending during a recession.

“Interest rates are still high,” Lopez Obrador said at his morning press conference on Friday. “The Bank of Mexico is lowering them, but it has to go even lower for people to want to take out loans.”

The president’s directive is unusual given that the central bank is deemed autonomous by the constitution, even if it’s not the first time he’s made such comments. But it’s especially sensitive now as inflation has sped past the central bank’s upper target range, leaving it with little room to keep cutting borrowing costs despite economists’ expectations that Mexico will suffer the deepest recession since the Great Depression.

While Lopez Obrador has said in the past he’d like policy makers to lower rates, he’d prefaced that by saying he respected Banxico’s autonomy, something he didn’t do this time.

Just Thursday, data showed inflation in the first half of October outpaced all but one forecast in a Bloomberg survey, reaching 4.09%. The central bank targets inflation at 3%, plus or minus one percentage point.

Known as Banxico, the central bank has slashed interest rates by 4 percentage points since last year to 4.25%, but had been increasingly signaling a pause to its record easing cycle amid the pickup in inflation and risks to the peso from global volatility and concerns about Lopez Obrador’s economic policies.

Read More: Mexico Inflation’s Rise Suggests End to Easing, Boosts Peso

Two members of Banxico’s rate-setting board thought the bank has likely exhausted its room to lower rates, two other members saw room for further cuts and one was in the middle, minutes from their last meeting showed.

The president also said the country’s financial institutions need to lower interest rates more. Mexico banks are lending, but people and companies are being cautious about taking out new loans, Luis Nino de Rivera, the head of the national bank association, said on Thursday.

Earlier this week, Ricardo Monreal, the Senate majority leader representing Lopez Obrador’s party, submitted a new bill that calls for the central bank and the nation’s antitrust agency to increase supervision of bank fees and interest rates.

The bill was much less strict than legislation presented by Monreal in late 2018 to cut over a dozen bank fees, which had tanked stock prices of the country’s banks.

©2020 Bloomberg L.P.