By Juan Montes 

MEXICO CITY -- The Bank of Mexico cut interest rates by a quarter percentage-point Thursday, as expected, continuing an easing cycle that started in August when inflation eased towards the bank's target.

In its third consecutive cut, the Mexican central bank reduced the overnight interest-rate target to 7.5%, its lowest level since June of last year. The decision wasn't unanimous, with two of the five board members voting for a more aggressive half percentage-point cut.

The cuts mirror recent moves by the U.S. Federal Reserve. The monetary easing in the U.S. has given Mexico's central bank maneuvering room to lower borrowing costs without reducing the attractiveness of the peso and other peso-denominated assets.

The bank cited tame inflation and the lack of economic growth, as well as a more stable peso, in cutting rates. Economic growth for this year and 2020 will likely be below the bank's current estimates of 0.5% and 2%, the bank said in its policy statement.

The fact that two members voted for a bigger rate cut indicates the easing cycle would likely continue, at least at the next policy meeting in December, analysts said.

Gerardo Esquivel and Jonathan Heath, both appointed by President Andrés Manuel López Obrador, a leftist, had voted for a half-percentage point cut at the September meeting and are seen as the most dovish board members. The identities of the voters are disclosed two weeks later in the post-meeting minutes.

Mexico's economy has narrowly avoided slipping into recession so far this year. Gross domestic product was flat in the first nine months, following a 0.3% contraction in the first quarter, hit by declines in private and public investment, and a slowdown in manufacturing and domestic demand.

The slack in the economy "has widened more than anticipated," the bank said.

The central bank stressed the Mexican economy is going through a period of "significant uncertainty," both external and domestic. The new trade deal with the U.S. and Canada, which is set to replace the North American Free Trade Agreement, has yet to be passed by the U.S. Congress.

The bank also sent a message to the López Obrador administration, saying the government needs to strengthen the credit rating outlook for the country and state-oil firm Petróleos Mexicanos, and to achieve its 2019 fiscal targets and 2020 budget goals.

Fitch Ratings downgraded Pemex's bonds to speculative status in June, while Moody's Investors Service has the company at its lowest investment grade with a negative outlook. Pemex reduced its debt to $99.6 billion at the end of September from $104.4 billion in June thanks to a capital injection from the government, but remains the world's most indebted oil company.

The central bank seemed pleased by the recent performance of consumer prices, as annual inflation is in line with its target at 3.02% in October. The slowing inflation has to do with lower energy prices and a stagnant economy crimping demand for goods and services.

The central bank warned of several risks that could still impact inflation, including a deterioration of public finances and the threat of trade tariffs by the U.S., although the bank said the risk of tariffs has declined.

Write to Juan Montes at juan.montes@wsj.com

(END) Dow Jones Newswires

November 14, 2019 16:39 ET (21:39 GMT)

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