Mexico Loses Central Bank Chief to BIS as Trump Risk Looms

  • Carstens to leave post in July, takes BIS job in October
  • Banxico head was runner up for top job at IMF in 2011

Carstens: Banco de Mexico Prepared to Raise Rates

Mexico central bank Governor Agustin Carstens is resigning his post next year to run the Bank for International Settlements, leaving the nation without its best-known policy maker amid new economic challenges from the Trump administration.

The peso briefly extended its loss, falling as much as 1.4 percent after news broke Thursday, extending the worst performance this year among major currencies tracked by Bloomberg. Carstens will leave the central bank in July and join the BIS in October, according to a Banco de Mexico statement.

Carstens earned investor respect as a smart and responsible manager by steering Latin America’s second-largest economy through the 2008-2009 global financial crisis. He took the helm of the central bank in 2010, helping bring inflation to its slowest in more than four decades even as the board cut interest rates to a record low and the peso tumbled to the weakest level since 1993. His departure is a loss for the nation from a policy perspective, said Alonso Cervera, chief Latin America economist at Credit Suisse Group AG.

"It is a negative development from the perspective that investors in Mexico and abroad viewed him as a strong anchor of Mexico’s macroeconomic policies," Cervera said. "The timing is unfortunate in light of the increased uncertainties that Mexico faces" after the U.S. election, he said.

The resignation was reported earlier by Forbes and TV Azteca.

Watch more: Slim and Bloomberg discuss Trump and U.S-Mexico outlook

Carstens’s departure, just as the outlook for U.S. and Mexico joint trade policies sour, may increase volatility in its currency markets. The central bank raised its key interest rate a half point last month to 5.25 percent, the highest since 2009, after Donald Trump’s election dragged the currency to a record low. Carstens once likened Trump to a "hurricane."

"I made this decision with mixed feelings," Carstens said at a news conference at the central bank. "On the one hand, with great joy and honor for the recognition given to me, Banco de Mexico and to our country. On the other hand, it wasn’t easy to resign from Banxico, an institution to which I owe much of my professional life."

Carstens pledged that his handover to a yet-to-be determined successor will be orderly, given the solidity of the central bank. He said he took the post because of the importance he places in the need to coordinate central banks globally. He said lax monetary policy has run its course and now central banks need to use other measures, such as structural reforms, to help their nations’ markets and economies.

‘Banxico’s Loss’

In an interview with Bloomberg TV on Thursday, Manuel Sanchez, a deputy central bank governor who’s leaving the board at the end of this year, said Carstens’s departure is a loss for Banco de Mexico and called him a great leader. Carstens was informed of his selection in a phone call from the BIS on Thursday morning.

Carstens deserves credit for helping the central bank achieve its 3 percent inflation target in a sustained way for the first time ever and boosting international reserves to a record, giving Mexico extra ammunition against financial volatility, said Carlos Capistran, the chief Mexico economist at Bank of America Corp. Potential qualified candidates to replace him include deputy governors Manuel Ramos Francia, Javier Guzman or even newly-approved deputy Alejandro Diaz de Leon, Capistran said.

President Enrique Pena Nieto in an e-mailed statement thanked Carstens for his service and said he will nominate a replacement at the appropriate time.

Carstens, 58, was tapped as head of the central bank’s five-member rate-setting board by then-President Felipe Calderon and took the helm 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 International Monetary Fund to France’s Christine Lagarde. The “IMF’s loss has been Mexico’s gain,” Euromoney said. Carstens previously served as Calderon’s finance minister and before that as a Deputy Managing Director at the IMF.

The 86-year-old BIS oversees financial and monetary stability. Headquartered in Basel, Switzerland, it’s home to the Basel Committee on Banking Supervision and hosts the Financial Stability Board, chaired by Bank of England Governor Mark Carney. European Central Bank board member Benoit Coeure was also a finalist for the BIS job. Carstens replaces Jaime Caruana, who has been the BIS general manager since 2009, and his term is for five years.

Carstens "is very well prepared to head the central bank of the central banks," Capistran said.

— With assistance by Isabella Cota, and Jonathan Roeder

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