March 6, 2020 / 4:27 PM / a month ago

High interest rates give Mexico room for stimulus on coronavirus: official

FILE PHOTO: Mexico's Undersecretary of Finance and Public Credit Gabriel Yorio speaks during an interview with Reuters in Mexico City, Mexico September 11, 2019. REUTERS/Edgard Garrido

MEXICO CITY (Reuters) - Mexico’s “very high” interest rates give it room to maneuver as it joins other countries readying measures to temper the impact of the coronavirus, Deputy Finance Minister Gabriel Yorio said on Friday.

Policymakers have taken a range of approaches to deal with the economic fallout from the coronavirus, from emergency interest rate cuts and big spending packages to a wait-and-see-stance and pledges of action if required.

“In Mexico, we have a very high interest rate that gives a lot of room to maneuver,” Yorio said at an event in Mexico City. “We need to be very accurate in how we do it, because if we overreact, we will impede economic activity more.”

The Bank of Mexico cut its key rate by 25 basis points to 7.0% on Feb. 13. A Citibanamex survey saw the central bank reducing rates to 6.5% at its March 25 meeting after the U.S. Federal Reserve cut its policy rate by 50 basis points this week.

Yorio said the ministry was analyzing what kind of fiscal stimulus measures to apply and what role development banks might play.

“The finance minister is in constant communication with the governor (of the Bank of Mexico) and I would assume that they’re ready to take an action,” Yorio said.

Earlier on Friday, the Mexican peso fell 2.7% to its lowest level against the dollar since December 2018 before recovering. Meanwhile, Mexico’s benchmark stock index fell as much as 2.7% in step with drops on U.S. stock markets.

Earlier this week, Mexican Finance Minister Arturo Herrera urged the private sector to boost investment to help counter the impact.

So far, Mexico has reported five cases of new coronavirus that has now infected more than 100,000 people around the world.

Reporting by Abraham Gonzalez; Additional reporting by Miguel Angel Gutierrez; Writing by Stefanie Eschenbacher; Editing by Dave Graham, Alistair Bell and Paul Simao

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