Mexico's Carstens Said to Stay at Banxico Until November 30

  • Carstens had previously announced he’d depart for BIS in July
  • Mexico saw inflation surge, peso drop to record low in January

Governor Agustin Carstens pushed back his departure from Mexico’s central bank, previously announced for July, as the nation faces a surge in inflation and near record weakness in the peso, according to an official at the bank with direct knowledge of the matter.

Carstens will remain at Banxico until November 30, according to the person, who wasn’t authorized to speak on the record. El Universal and Televisa had reported earlier that Carstens accepted the request from President Enrique Pena Nieto. Carstens will leave Banxico to head the Bank of International Settlements.

A central bank spokesperson declined to comment on Carstens’s departure. The peso extended its gain, rising 0.3 percent to 20.3682 per dollar in afternoon trading in Mexico City, near the strongest level in two months.

"Carstens is seen as having a good relationship with the market, particularly regarding his credibility, and therefore if he remains a few months more, this could favor inflation expectations," said Mariana Ramirez, an economist at Banco Ve Por Mas.

Carstens 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. His plan to depart has added uncertainty to the outlook for the currency just as Mexico faces new challenges from the Trump administration.

The central bank raised its key interest rate a half point earlier this month to 6.25 percent, the highest level since 2009, after Trump’s election undermined the peso and gasoline prices soared, sending inflation surging above Banco de Mexico’s 3 percent target. Mexico is facing the prospect of low growth and high inflation thanks in part to Trump’s threats to renegotiate free trade in North America and slap a tax on companies that send jobs south of the border.

"It’s certainly a surprise," said Ernesto Revilla, the finance ministry’s former chief economist who now works as an analyst at Citibanamex. "It’s going to be very important for the market to know the reason for this decision. It’s a positive to have a great policy maker like Agustin Carstens for a few more months, but will the market think that they haven’t been able to find a suitable replacement yet?"

Since Carstens announced his departure in December, no word has come out from the presidency on his replacement, fueling speculation on the prospects for Banxico’s future leadership. In a Bloomberg survey with 20 Mexico and U.S.-based analysts in banks and research firms including Barclays Plc and Citigroup Inc., 55 percent of the respondents said Alejandro Diaz de Leon, who just joined the bank’s board this year, was seen as the most likely successor.

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