Mexican central bank unveils deep emergency rate cut to counter coronavirus impact

MEXICO CITY (Reuters) - The Mexican central bank on Friday announced its biggest rate cut in six years in an out-of-cycle move, and pledged support for the financial markets as part of more aggressive measures to cushion the economy from the coronavirus fallout.

Banxico, as Mexico’s central bank is known, outlined measures to “provide liquidity and improve the functioning” of financial markets roiled by the coronavirus outbreak that has crashed growth prospects for Mexico and the global economy.

The 50 basis points cut brings the key interest rate to 6.50%, among the strongest actions taken by Banxico in years, with the benchmark rate at its lowest level since 2017. The 0.5% rate reduction was Banxico’s largest cut since June 2014.

In a statement, the bank said it was also trimming the rates on its additional ordinary liquidity facility, and reducing by 50 billion pesos ($2.06 billion) the monetary regulation deposit that private banks must observe.

The peso currency, which has tumbled in recent weeks, extended losses after the central bank announcement to trade 2% lower at around 24.5 per dollar.

Banxico added there was heightened uncertainty about the inflation outlook, with risks both on the downside and the upside, along with increased slack in the economy.

At its last monetary policy meeting on Feb. 13, Banxico shaved 25 basis points off its benchmark rate to bring it down to 7.0%. It was its fifth consecutive cut amid sluggish economic growth in 2019, when the economy contracted 0.1%.

The bank said at its latest meeting one member of its monetary policy board voted to reduce rates to 6.75%.

Reporting by Noe Torres; Editing by Frank Jack Daniel and Rosalba O’Brien