Mexico's central bank seen cutting key rate to lowest level in four years

MEXICO CITY (Reuters) - (This Aug. 7 story corrects paragraph 2 to say 20 of 24 analysts’ projections forecast a cut of 50 basis points and removes paragraph 3 to make clear that no respondent forecast a cut of 100 basis points)

FILE PHOTO: The logo of Mexico's Central Bank (Banco de Mexico) is seen at its building in downtown Mexico City, Mexico February 28, 2019. REUTERS/Daniel Becerril/File Photo

Mexico’s central bank is seen cutting its key interest rate next week to the lowest level in four years, despite inflation that is slowly ticking upwards, to help assuage the economic fallout of the coronavirus pandemic, a Reuters poll showed Friday.

At the next monetary policy meeting on Thursday, the Bank of Mexico is forecast to reduce the benchmark interest rate MXCBIR=ECI by 50 basis points to 4.50%, according to 20 of 24 analysts' projections.

That would mark a tenth consecutive reduction and bring rates to levels not seen in four years.

Three analysts forecast a cut of 25 bps and another saw a hold.

Annual inflation in July rose to its highest in five months, but forecasts for Banxico to cut rates were likely unchanged as the rise in consumer prices was in line with expectations.

“In all, given the deep recession, timid fiscal response, and the still high level of nominal and real rates, the inflation backdrop should not preclude the central bank from easing further in coming months,” said Goldman Sachs economist Alberto Ramos.

Mexico entered a recession in 2019 and the economy is expected to shrink by up to 10.5% this year, in what Finance Minister Arturo Herrera has said would be its steepest decline since the Great Depression in the 1930s.

Gross domestic product shrank by a historic 17.3% in the second quarter from the previous three months as the pandemic shut factories, kept shoppers and tourists at home and upended trade.

The central bank is due to publish its latest monetary policy decision on Thursday at 1300 (1800 GMT).

Reporting by Anthony Esposito in Mexico City and Gabriel Burin in Buenos Aires; Editing by Nick Macfie