President Andrés Manuel López Obrador on Friday described the Bank of Mexico’s decision to lower the benchmark interest rate as a “bold” move and expressed satisfaction that the Mexican peso did not weaken as a result.
The central bank announced on Thursday that its board of directors had decided to cut the key interest rate by 25 basis points to 11% from a record high of 11.25%. This is the bank’s first rate cut in more than three years.
López Obrador said a 25-basis point rate cut would be “very small,” but it was still unlikely, given that the U.S. Federal Reserve has kept its benchmark interest rate at 5.25% to 5.5% since last July. He said the decision was “bold.”
“This was a bold move because in the United States we don’t want interest rates to change,” he told reporters at a morning press conference.
The Bank of Mexico’s (Banxico) board holds regular monetary policy meetings immediately after Fed meetings, and has often followed the lead of the U.S. central bank.
President López Obrador said it was “possible” that Mexico’s interest rate cuts caused the peso to weaken against the US dollar, but while the USD:MXN exchange rate was shown on a screen behind him, he said: “Nothing happened. ” he happily declared.
“Nothing. It didn’t move,” he said, displaying a rate of 16.71 pesos to the dollar.
The peso benefits from a wide gap between official interest rates in Mexico and the United States, and many analysts expected the peso to weaken if that gap narrowed as a result of Banxico’s rate cuts.
President López Obrador argued that the rate cut would stimulate investment in Mexico, saying that although the rate cut would be small, it would still encourage businessmen to invest.
“And it will also help all of us Mexicans…because 70% of the debt contracted by Mexico is denominated in pesos,” he said, explaining that lower interest rates would result in lower repayments.
“So it was a good decision.” [to cut rates]” López Obrador said.
“There was no impact. [the peso], no need to buy dollars. …The peso is strong, very strong. [and so is] It’s the economy in general,” he said.
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