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Mexico cuts interest rates: why in Latin America the cost of credit falls and how it can affect you



"Developed countries lower interest rates, and global growth slows", two factors directly affecting Latin American economies, Christian Lawrence, an analyst at Rabobank analysis company in New York, tells BBC Mundo.

In the face of a global economic slowdown, Latin America is lowering interest rates.

Some of the largest economies in the region this year have taken the path of reducing the value of money, which practically translates into how much they are borrowing and how much they are borrowing.

In essence, lowering prices reduces the cost of credit.

Therefore the decisions made by the central banks of each country directly affect the business entities, the people and the economy as a whole.

This Thursday Central Bank ofMexico declined rates to 25 basis points, leaving them at 7.75%, after dropping in August for the first time in five years.

Peru dropped 25 points, while Chile and Brazil went much further, lowering interest rates by 1% (100 basis points).

"Inflation has fallen in the region"William Acksexon, chief economist at emerging markets at London-based firm Capital Analysis Capital Economics, told BBC World.

"This has provided central bank coverage in Latin America with interest rate cuts," says acksexon.

"Another very important reason is that economic growth is very weak in Latin America. "

"These factors are likely to include larger reductions across much of the region during the rest of this year and into 2020," the economist projects.

The weight of the uncertainty

Alfonso Esparza, senior analyst for Latin America in Oanda, says the region is following the global trend of declining rates.

"The trend has clearly declined. Regional inflation is low, oil prices have kept prices low and within targets set by central banks, "he explains in a dialogue with BBC Mundo.

"Brazil made cuts more aggressive, while Mexico was more cautious", in a context in which both countries 'Almost falling into recession'.

Latin American economies, he added, "feel that the effect of the US-China trade war and the uncertainty is likely to continue next year."

Exceptions

No doubt the world stage plays a key role.

"Developed countries lower interest rates, and global growth slows", two factors directly affecting Latin American economies, Christian Lawrence, an analyst at Rabobank analysis company in New York, tells BBC Mundo.

"In the case of Chile and Peru, the trade war weighed on their economies, as copper prices fell."

And Mexico has been hit by "the slowdown in the US manufacturing sector, combined with continued trade uncertainty," Lawrence explains.

With everything there are exceptions. One of them is Colombia, which faces high inflation and pressures on its currency, leaving less room for lower rates.

In fact, analysts consulted by BBC Mundo claim that the country will raise rates in the coming months.

The other big exception is Argentina, which with gigantic inflation, is unlikely to cut rates, experts say.

How can it affect your pocket?

Reducing the rate is an incentive for people to increase consumption (for example, by asking for loans) buy a car or a house) and for companies to seek money from banks and invest.

All with the idea of energize the economies to encourage growth

On the other hand, for those who are already in debt (and their debt varies depending on interest rates), it is a benefit.

What can consumers expect in daily prices?

"There may be a rise in prices imported products from abroad, "given that some purchasing power has been lost," says Alfonso Esparza.

This can affect countries that are heavily dependent on imports.

Conversely, "as the local currency shrinks, exports become more attractive."

What is not known is the extent to which the interest rate falls will abolish the economic activity of the region, because there are many other factors that influence the direction of economies.


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