Mexico to ramp up spending and boost private investment

06 Mar 2020

Mexican peso Mexico’s government announced plans to ramp up public spending, and is calling on the private sector to boost investment. 

The announcement was made by Finance Minister Arturo Herrera on Tuesday, in a bid to combat the economic implications of the spreading coronavirus outbreak.

“What we have to do is take advantage of all the fiscal (tools) that we have, and all the investment opportunities at hand,” said Herrera, speaking at a news conference together with other officials. 

President Andres Manual Lopez Obrador’s government said it is maintaining close communication with the country’s central bank, the Bank of Mexico, to establish an appropriate response to the negative effects of the rapidly-spreading outbreak on the economy. 

Herrera said talks with central bank governor Alejandro Diaz de Leon had already taken place. 

On Tuesday, the U.S. Federal Reserve announced an emergency rate cut to safeguard the world’s largest economy from the implications of the virus.

“This is something that more or less had been expected,” said Herrera, referring to the U.S. rate cut. 

Herrera argued that Mexico needed to adopt a more cautious stance with regards to taking on new debt, due to its higher real interest rates. 

“The Mexican government’s room for manoeuvre is quite different,” Herrera said, highlighting the difference in borrowing costs between the U.S. and Mexico. 

Earlier on Tuesday, the Federal Reserve slashed its benchmark rate by half a percentage point to a target range of 1.00%-1.25%, while the Bank of Mexico’s benchmark interest rate stands at 7.0% following a cut of 25 basis points by policymakers in February. 

“What (Herrera) is trying to say is that we can’t borrow because it’s very expensive given the situation,” said Jonathan Zuloaga, an analyst at financial consultancy Columbus de Mexico.

“Mexico has long had the highest real interest rate of any emerging country with a significant financial market.”