Markets are cautiously waiting for news from Mexico’s central bank, after Agustín Carstens resigned as governor in December. The announcement came just weeks after Donald Trump’s victory in the US presidential election sent Mexican markets into a tailspin.
While the resignation does not have negative implications for governance, it came as a shock to the markets. The governor, who will depart in July, is “one of the most respected figures” in the financial community, says one Mexico City-based investment banker. “His replacement has big shoes to fill.”
Carstens’ successor is expected to be another strong, credible figure who can extend Banxico’s solid policymaking record, analysts said. But the appointee will have a tough job.
The position demands credibility to maintain investor confidence in Mexico, and the ability to direct monetary policy to withstand external blows from future US policy, says Guillermo Aboumrad, a director of market strategies at Mexican brokerage firm Finamex.
The peso slumped 12% against the dollar in the days after the US election. Carstens acted quickly, raising the benchmark interest rate by 50 basis points in November to 5.25%, followed by another hike of the same size in December. At 5.75%, Mexican interest rates are at their highest since 2009.
Mexico’s finance ministry is holding its growth estimates for this year at between 2% to 3%, but private sector economists have already marked down their expectations in response to the US election. Itaú Unibanco cut its 2016 GDP forecast for the country to 2.1%, from 2.6%, and predicts 1.8% this year.
“The Trump shock is likely to perpetuate uncertainty about protectionism, particularly harmful for investment in Mexico’s manufacturing,” Mario Mesquita, Itaú Unibanco chief economist, said in a report. “A prolonged period of uncertainty over trade relations will likely keep the peso at weak levels.”
Mexico’s former finance minister Luis Videgaray is believed to be in contention for the job, two sources told LatinFinance. Other names mentioned in local media include Alejandro Werner, a former deputy finance minister and Banxico’s existing deputy governor Manuel Ramos Francia.
The peso stabilized after the November sell-off, but the outlook for the year ahead is highly contingent on the course of US policies, Alberto Ramos an economist with Goldman Sachs, says. Exchange rate forecasts are around 19.5 pesos to 20 pesos to the dollar.
“The real effective exchange rate looks undervalued,” he says. “A prolonged period of uncertainty over trade relations can exert pressure on the peso.”
Carstens, 58, has been governor since 2010 and his term at Banxico was scheduled to conclude in 2021. In October he will take the top job at the Bank for International Settlements in Basel, Switzerland.
His departure came amid several others from Latin American finance officials. In Colombia, Juan José Echavarría starts a four-year term as central bank governor this month, replacing José Darío Uribe at BanRep. Uribe was LatinFinance’s Central Bank Governor of the Year in 2014.
In Peru, Carlos Blanco left his job as head of public credit in December, to join a private sector fund focusing on local SMEs. The finance ministry had not named a replacement for Blanco by mid-December.
Ecuador’s finance minister Fausto Herrera also stepped down due to health issues. LF