Mexico Central Bank Can Cut Rates Further, Deputy Governor Says

(Bloomberg) -- Mexico has space to further reduce its benchmark interest rate, a central bank deputy governor said less than a week after policy makers slashed borrowing costs to the lowest in almost four years.

“We still have some margin to reduce interest rates, but of course we have to do this in a very careful way,” Javier Guzman, Deputy Governor of Mexico's Central Bank, said Tuesday at a webinar hosted by the Institute of International Finance.

Guzman's comments come days after the central bank, known as Banxico, lowered its policy rate to 5% in its fourth straight half-point cut. While demand and investments remain weak, some analysts say Mexican policy makers are running out of room for further easing as both annual inflation and consumer price expectations pick up.

Read more: Mexico Central Bank Cuts Rate Amid Forecasts Easing Will End

Mexico's economy will shrink 10.5% this year, more than peers such as Brazil, Russia, South Africa and India, according to the International Monetary Fund. Despite the negative outlook, Guzman said that central bankers remained “confident about the strength of the financial system.” Additionally, Banxico reserved the right to take further action.

“We are facing a situation that is worse than the great depression,” he said, adding that, while Banxico planned to the adhere to its calendar of policy decision meetings, “in circumstances like these, we need to be flexible.”

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