MEXICO CITY, Feb 8 (Reuters) - Top economists think Mexico’s president may name a former finance ministry official close to his administration to replace Agustin Carstens as the head of the central bank, according to a Reuters poll.
Alejandro Diaz de Leon, who just took a deputy governor post at the central bank in December, is the most likely choice for central bank governor, according to six of 10 chief Mexico economists at major banks. Those betting on Diaz de Leon assigned a median probability of 60 percent to his nomination. (See factbox for details:)
Before taking over at export bank Bancomext in late 2015, Diaz de Leon served as the head of the finance ministry’s public debt office. He was a key figure in selling President Enrique Pena’s economic reform agenda in 2013 and 2014.
A government-friendly chief at the central bank could mean a slower pace of interest rate hikes later this year if the economy sags further as presidential elections near.
Carstens does not leave until June and the field of candidates could shift. But whoever replaces Carstens will face a battle to establish credibility.
Inflation is expected to rise well above a four-year high in January while the economy is expected to slump after threats by U.S. President Donald Trump to crimp trade with Mexico paralyzed investment plans and battered consumer confidence.
“For whoever is named, the honeymoon is going to be very short,” said Andrew Stanners, a fund manager at Aberdeen Asset Management in London. “The government will be putting him under pressure. ‘Don’t raise rates, cut rates if you can.'”
Mexico’s central bank, which officially targets inflation and not the currency, lost some credibility last year as it hiked rates by 250 basis points as the peso swooned even though inflation was below the upper target of 4 percent.
With inflation now seen rising well over 5 percent this year, the next central bank governor will have a chance to reestablish confidence that policymakers are targeting the inflation rate, and not a peso level, Stanners said.
President Enrique Pena Nieto could yet ask lawmakers to change statutes that set age limits on nominees and strike down a ban on foreign born candidates, which would open up a wider field of candidates to replace Carstens, a chief architect of Mexico’s free-floating currency and massive peso bond market.
Ostensibly, Carstens is leaving to pursue his ambition of directing a multilateral agency, the International Bank of Settlements in Basel. He denied that his decision was due to friction with the government, which has driven a surge in federal debt.
Diaz de Leon is seen as close to Mexico’s former finance minister Luis Videgaray who is now leading talks with the Trump White House as foreign minister.
But his views on monetary policy have not been firmly established. Asked if he was a hawk, or more prone to act to fight inflation, or a dove, less inclined to act, economists were divided. Three said dove, two said hawk and four said he was neutral.
If Diaz de Leon is named, then Pena Nieto would need to name a new fifth member to the board to fill Diaz de Leon’s deputy governor seat.
Miguel Messmacher, the deputy finance minister who worked on the tax structure of the country’s energy reform, was seen as the most likely nomination by six of 10 economists, with a median 50 percent chance.
Together, Diaz de Leon and Messmacher would pack the board with two former finance ministry officials, who some of the economists said could be more sensitive to the government’s concerns that higher rates could slow growth.
Bianca Taylor, an analyst at Loomis, Sayles & Company played down those concerns.
“Everybody at the central bank is very competent. This is not a political organization that gets jostled around by politics,” she said.
Reporting by Michael O'Boyle; Editing by Christian Plumb, Bernard Orr