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Mexico's central bank cuts benchmark rate, expects slight economic recovery

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Mexico's central bank cuts benchmark rate, expects slight economic recovery

The Mexican central bank reduced its benchmark interest rate for the second consecutive meeting this year, citing a continued decline in inflation and ample slack in the domestic economy, which avoided a technical recession in the second quarter.

In a majority decision, Banco de México's five-member board lowered the target for the overnight interbank interest rate by 25 basis points, to 7.75%, following a similar rate cut in August, which was the first in over five years.

Two policymakers voted for a rate cut of 50 basis points, the central bank said.

The central bank expects to see a slight recovery in economic activity over the rest of the year. Final data from the finance ministry in August showed that Mexico's GDP was stagnant in the second quarter after a 0.2% contraction in the first quarter.

Headline inflation fell below the bank's target of 3% between July and the first two weeks of September, declining to 2.99% from 3.78%, amid a slowdown in price increases for energy, agricultural produce and livestock. Core inflation stayed around 3.8%.

The central bank said uncertainty regarding the risks to inflation remains high, including the possibility of additional tariffs imposed by the U.S. on Mexican goods.