There has been a change of plan at Mexico’s central bank, the Banco de México (Banxico). After months of waiting for senate hearings to confirm his appointment as governor of Banxico, former finance minister Arturo Herrera suddenly discovered he no longer had the backing of President Andrés Manuel López Obrador. Instead, López Obrador has announced that Victoria Rodríguez Ceja, a finance ministry official, is to get the job. Financial markets have been taken aback by the abrupt change.
Financial markets and investors had got used to the idea that Herrera, former finance minister under President López Obrador (2019-2021) and someone they saw as a safe pair of hands, would become the new Banxico governor, so they were caught off balance by the change.
The change came at a sensitive time since Mexico’s inflation rate has been pushing up (it is projected to reach 7.3% by year-end, a 20-year high) and Banxico has been tightening its interest rates. There are also concerns that López Obrador might seek to reduce Banxico’s independence, although he has denied that this is his intention.
Speaking at a press conference, López Obrador confirmed he had withdrawn his support for Herrera but gave no reason for the change. He praised Rodríguez Ceja’s work as deputy finance minister in charge of government expenditure since 2018 and said she had helped deliver fiscal stability, adding that it was important to have females in key jobs (she will become the first female governor of Banxico).
Rodríguez Ceja has also had roles relating to debt and financial management, but critics note she has less specific monetary policy experience. Alberto Ramos, of the investment bank Goldman Sachs, responded to the announcement by saying that “the risk is that the new nominee is either not sufficiently independent from the government, or not sufficiently experienced for what is ultimately a highly technical job, or both”.
Financial analysts remain wary of what they see as López Obrador’s plans to align Banxico more closely with his political project, known as the ‘fourth transformation’ (or 4T for short). He has said the Banxico governor needs to be an economist with a social and moral dimension. More importantly he has talked of giving Banxico a dual function, not only to control inflation, but also to stimulate economic growth.
Most mainstream economists argue that central banks should be independent and exclusively focused on controlling inflation. Herrera also took that view. He is on record as saying that economic stimulus can cause bottlenecks and inflation and that the bank should not have potentially conflicting policy aims.
Peso drops, bonds dip
Reflecting the worries of financial markets and investors about the appointment of Victoria Rodríguez Ceja as governor of Banxico, on 24 November the peso dropped 1.8% against the US dollar, while the price of 10-year Mexican bonds also dipped.