Fed Swap and Rate Cut Eyed by Mexico

The other Friday the country of Mexico had gone on the offensive in an attempt to counter a very sharp economic downturn for their country. They had slashed their interest rates as a way to jump-start the growth of their nation and had also pledged to activate their line of credit along with the United States Federal Reserve. The central bank ended up lowering the key interest rate at around seventy five basis points to finally rest at six point seventy five percent. This had surprised many investors who were currently expecting a second run of the quite tepid twenty five basis point cut that was ordered last February.

Bad News in Mexican Economy

The exports of Mexico ended up collapsing because many United States consumers were buying fewer cars, TV sets and other kinds of products that are made and assembled in many Mexican factories. These factories ended up laying off several hundred thousand workers. The bank therefore hopes to decrease the costs of borrowing in an attempt to stem off a bit of the bleeding as well as reverse such contractions that were made in their economy. Furthermore, the bank will work on toning down their concerns when it comes to inflation. Inflation is currently running an almost seven year high and it is also suggesting to plan more cuts of interest-rates. The monetary policy direction is quite clear, according to Guillermo Ortiz who is the governor of the Central Bank. This was what he mentioned in one radio interview during a banking convention in Acapulco’s Mexican resort. The peso indicated signs of strength because of the rate cut as it firmed up 0.52 percent to rest at 14.1945 for each dollar. Meanwhile, the benchmark of the IPC stock index .MXX fell down 1.19 percent because the plan of the Federal Reserve to re-ignite the small business and consumer lending had not passed the expectations.

Lowered Inflationary Pressures

Guillermo Ortiz also mentioned that the slowing down of the economy was also working to lower the pressures on inflation. The central bank of Mexico has continually been slowing down the pace of rate cuts ever since the previous month when there was a fifty point reduction to cap off the month of January. This was because of worries in a steep fall of peso values that had fueled inflation. The bank had also been reiterating its concerns last Friday during the monetary policy statements it releases every month – but also took note of some market turbulence that had also eased off. It was also stated that the economy of Mexico could actually shrink by around one point nine percent sometime this year, according to Alejandro Werner who is the Deputy Finance Minister of Mexico.