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Mexico to speed up spending, spur private investment to counter coronavirus shock

MEXICO CITY (Reuters) – Mexico’s government plans to speed up public spending and is urging the private sector to boost investment to help counter the economic pain caused by the global coronavirus outbreak, Finance Minister Arturo Herrera said on Tuesday.

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

The government of President Andres Manuel Lopez Obrador said it is in close contact with the Bank of Mexico, the country’s central bank, to coordinate a suitable response to the impact of the fast-spreading virus on the economy.

Herrera said he had already spoken to Bank of Mexico Governor Alejandro Diaz de Leon.

The U.S. Federal Reserve cut interest rates earlier on Tuesday in a bid to shield the world’s largest economy from the impact of the coronavirus.

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

Herrera argued Mexico needed to be cautious about taking on new debt because of its higher real interest rates.

“The Mexican government’s room for maneuver is quite different,” he said, pointing to the difference in borrowing costs between the United States and Mexico.

The Fed cut rates on Tuesday by a half percentage point to a target range of 1.00% to 1.25%, while the Bank of Mexico’s benchmark interest rate stands at 7.0% after policymakers cut it by 25 basis points last month.

“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.”

(Reporting by Daina Beth Solomon and Dave Graham; Additional writing by Noe Torres; Writing by Anthony Esposito; Editing by Dan Grebler and Christopher Cushing)