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Mexico central bank board split on future rate decisions, minutes show

Credit: REUTERS/DANIEL BECERRIL

The Bank of Mexico's five-member board has diverging views on the path monetary policy should take, with one arguing there is less room for further interest rate cuts and another saying they should continue, minutes of its latest meeting showed Thursday.

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MEXICO CITY, Aug 27 (Reuters) - The Bank of Mexico's five-member board has diverging views on the path monetary policy should take, with one arguing there is less room for further interest rate cuts and another saying they should continue, minutes of its latest meeting showed Thursday.

Banxico, as the bank is known, cut borrowing costs at its Aug. 13 meeting by 50 basis points to 4.5%, the lowest in four years, but there were signs the pace of cuts could slow as one board member favored a smaller reduction.

The minutes showed board member Irene Espinosa voted to lower the benchmark rate by just 25 basis points to 4.75%.

Espinosa said financial markets had developed favorably and economic activity "appears to have crossed an inflection point" after the bank implemented liquidity measures and accelerated monetary policy easing, the minutes showed.

But with inflation remaining above target, the possibility that Mexico's current recession may not be as disinflationary as supposed, and with foreign capital outflows continuing, there may be less room for monetary policy loosening, Espinosa argued.

Another board member said it was important for the easing cycle to continue, "without ruling out the possibility of reaching a real interest rate close to zero or even negative," the minutes showed.

The majority of Banxico's board believe economic recovery will depend on the coronavirus pandemic being contained, the development of a vaccine, and on effective treatment.

One board member said economic activity would remain depressed for a long period and that "several scenarios suggest a period of between 2 to 6 years for GDP to recover to the level observed in 2018," said the minutes.

The majority agreed the balance of risks to growth had a significant downward bias, and most members said the balance of risks for inflation remained uncertain.

(Reporting by Frank Jack Daniel and Dave Graham; Writing by Anthony Esposito; Editing by Bernadette Baum)

((anthony.esposito@tr.com; +5255 5282 7140;))

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