UPDATE - Mexico cuts interest rate by 25 basis points to 10.75%

ADDS ADDITIONAL COMMENTS

By Ovunc Kutlu

ISTANBUL (AA) - Mexico's central bank on Thursday lowered the target for the overnight interbank interest rate by 25 basis points to 10.75% from 11%.

The moves marks the second rate cut for Banco de Mexico, which reduced its policy rate by 25 basis points on March 21 to 11% from 11.25%.

"Mexican financial markets were affected by the volatility in international financial markets," Banco de Mexico’s Governing Board said in a monetary policy statement. "The Mexican peso depreciated."

The central bank said annual headline inflation rose to 5.57% in July, while core inflation showed a year-on-year gain of 4.05%.

"In view of the supply shocks that have affected non-core inflation, the forecasts for headline inflation were revised upwards for the short term," said the statement.

The bank said annualized seasonally adjusted core inflation is expected to be 3.7% in the third quarter of this year.

Banco de Mexico last made a rate increase in March 2023 that pushed the interest rate to a record 11.25%.

The central bank said its Governing Board expects that the inflationary environment may allow for discussing adjustments in interest rates in future.

"It will consider that global shocks will continue fading and the effects of the weakness in economic activity," said the statement. "It will take into account the incidence of the monetary policy stance that has been maintained and that prevailing in the future on the evolution of inflation throughout the horizon in which monetary policy operates."

The bank said dynamism of economic activity is expected to have remained "heterogeneous" across countries during the second quarter of this year, adding headline and core inflation continued decreasing in most of these economies.

It said the American economy continued growing at a higher rate than other advanced economies.

"Among central banks of advanced economies, some cut their reference rates, while the Federal Reserve left its rate unchanged and the Bank of Japan raised it," said the statement. "The latter, together with the lesser dynamism of the labor market in the United States, contributed to the volatility in international financial markets."

Banco de Mexico listed some of the major global risks as the intensification of geopolitical turmoil, the continuation of inflationary pressures, greater volatility in international financial markets, and the challenges to financial stability.