Mexico cuts key interest rate to 5.25 percent

Mexico's central bank cut its key interest rate by three quarters of a point Friday to spur growth for the recession-plagued economy.

The bank lowered the benchmark rate to 5.25 percent from 6 percent, saying strong action was needed because the economy had contracted more than expected this year after a fall in exports to the United States and the national shutdown to control swine flu.

Mexico's economy is in recession and the government is forecasting a 4.1 percent contraction this year. About 80 percent of exports go to the United States, which is also in a recession.

Swine flu cost Mexico's economy at least $2.2 billion during the first 10 days of the outbreak, and is expected to cost it millions more in lost tourism revenues. Tourism is Mexico's third-largest source of legal foreign income, after oil and remittances.

Friday's action marked the fifth time since January that the bank has reduced rates to stimulate the economy, an action that also has helped the battered Mexican peso. The peso was at 13.17 after the announcement, gaining 1.2 percent from the previous day.

The bank said it anticipated rates would be cut more moderately in the future, although it acknowledged the economy will contract even further in upcoming months because of the fallout of the swine-flu outbreak.

Airlines have canceled flights, unable to fill seats and beach resorts are virtually empty.

Mexico ordered a five-day shutdown of schools and nonessential businesses nationwide earlier this month to stop the flu's spread. The government reported two more deaths from swine flu Friday, bringing the death toll to 66. Mexico has confirmed a total of 2,895 cases, including the deaths.

Health Secretary Jose Angel Cordova said officials have been able to speed up testing of backlogged cases, causing a jump in the number. But he insists the outbreak is subsiding.

Cordova has invited tourists to return to Mexico, insisting that its vacation spots are safe, and five main resorts are virus-free.

The Treasury Department estimates the outbreak could reduce Mexico's $825 billion GDP by as much as 0.5 percent. Economists say it could cost Mexico has much as $7 billion in lost tourism revenues.

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