Mexico Looks to Inflation-Busting Carstens for a Second Term

  • Current term as head of central bank ends in December
  • Carstens was named Euromoney's governor of the year in 2013

Mexico’s government said it will nominate central bank Governor Agustin Carstens for a second six-year term, sticking with the man who has helped bring the inflation rate down to the lowest level in almost half a century.

Finance Minister Luis Videgaray announced the nomination, which will be sent to the Senate for ratification, in Mexico City after delivering the 2016 budget proposal. The move will be welcomed by investors, said Alberto Ramos, the chief Latin America economist for Goldman Sachs Group Inc.

“This is a very, very positive development,” Ramos said in a phone interview from New York before the announcement. “He has a done a very good job, so it’s only natural he would be reappointed to another term.”

Carstens’s career has included a spell as deputy managing director of the International Monetary Fund and finance minister from 2006 through 2009, when he guided Mexico through the global financial crisis. In his time at the helm of the Banco de Mexico, inflation has slowed, even as the peso tumbled to the weakest level since its 1993 redenomination.

The currency has declined 22 percent against the dollar in the past year to 16.827 at the close today, while inflation has slowed to 2.74 percent. The peso will rally to 15.9 to the dollar next year, Videgaray said.

Carstens, 57, was tapped as head of the central bank’s five-member rate-setting board starting in 2010, with Euromoney naming him its central bank governor of the year in 2013. Two years earlier, he lost out in his bid to head the IMF to France’s Christine Lagarde. The “IMF’s loss has been Mexico’s gain,” Euromoney said.

Despite the central bank’s decision to cut interest rates to a record low 3 percent to spur growth, economic growth has missed analyst forecasts in eight of the past 13 quarters and trailed the U.S. for two straight years.

Recently, Carstens has signaled that Mexico will probably need to raise rates for the first time since 2008 to preserve financial stability given an expected borrowing-cost increase in the U.S.

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