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Mexico and Namibia Cut Interest Rates

Stockholm (Ekonamik) – Of the four central banks meeting this week, two cut rates and two kept them on hold. Banxico, the central bank of Mexico, announced it had cut its policy interest rate by 25 bps to 8%. The Bank of Namibia also cut its interest rate to 6.5%. Norway‘s Norges Bank, decided to keep its interest rate on hold at 1.25%. The Bank of Uganda also chose to maintain its policy rate at 10%.

Banxico’s decision was not entirely surprising. As we noted in our preview of this week’s events, a rising number of members of the monetary policy committee had expressed support for cutting rates, the President had endorsed such a move and the slow pace of the economy legitimised this decision.

“As we have mentioned before, the cut had no significant effect on the MXN, as rate cuts were priced-in and as the risk-adjusted carry trade remains among the highest in the emerging market world,” commented Javier Amador, Principal Economist, and Carlos Serrano, Chief Economist at BBVA Research. “In spite of this, we continue to expect an additional 25bp rate cut (to 7.75%) before year-end and 100bp worth of cuts (to 6.75%) by year-end 2020 as they seem to finally come to the view that easing is needed and with inflation falling they now seem to believe more in their own expected inflation path,” they added.

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Norges Bank, driven by the general strength of the Norwegian economy is having to slowly review and eventually reverse its planned rate hike path, thus finding itself at the end of the interest rate cutting queue.

“Given the deteriorating global outlook, we believe Norges Bank will keep the policy rate unchanged at 1.25% in September,”  Kari Due-Andresen, Chief Economist for Norway at Handelsbanken Capital Markets commented regarding the future path of Norges Bank monetary policy. “We also think it will revise down its forecast for the policy rate. The central bank will probably prefer to keep a likelihood for another rate hike in the near term (December or March), but we believe it eventually will have to call it off. The way we see it, the policy rate has reached its peak at 1.25% in this economic cycle.”

Image by StockSnap from Pixabay

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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