UPDATE 3-Mexico central bank cuts rate again, but slows the pace

(Adds details about peso, rate cuts history)

MEXICO CITY, Sept 24 (Reuters) - Mexico’s central bank on Thursday again lowered borrowing costs to help stimulate an economy battered by the coronavirus pandemic, but reduced the pace of the cuts to a quarter of a percentage point in an environment of higher inflation.

The Bank of Mexico, known as Banxico, said the rate-setting board unanimously agreed to trim the benchmark rate by 25 basis points to 4.25%, for what was its 11th consecutive cut since August 2019.

For the past five rate decisions, the bank cut by 50 basis points as the economy plummeted during measures to contain the pandemic.

The bank has slashed rates by 275 basis points since March, when Mexico first shuttered sections of its economy, to its lowest level since June 2016.

The peso currency was unchanged after the announcement, which was in line with analyst expectations.

On Thursday, the bank described uncertainty and downside risks despite the economy beginning to recover in June and July.

Banxico, in a statement, highlighted continued risks to inflation, economic activity, and a possible financial shock from the pandemic that is expected to cause the biggest recession in Mexico since the Great Depression in the 1930s.

Mexico entered a recession in 2019, and the economy is expected to shrink by up to 10.5% this year.

Despite recent rises in headline and core inflation to around 4%, the bank said it foresaw a “stable” inflationary outlook at above 3% in the medium and long term. But it qualified those predictions by saying the balance of risks for the trajectory of inflation remain uncertain.

“Taking into account the referred risks for inflation, economic activity and financial markets, major challenges arise for monetary policy and for the economy in general,” the bank said.

Banxico’s rate-setters acted due to the inflation outlook and what it called “narrow” room for maneuver, the bank said.

The central bank added it would take “all necessary actions” in the future based on new information and considering the large impact on productivity of the pandemic, as well as the “evolution of the financial shock that we are currently facing.” (Reporting by Mexico City newsroom; Writing by Drazen Jorgic; Editing by Frank Jack Daniel, Marguerita Choy and Jonathan Oatis)

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