Mon. Dec 6th, 2021

In a surprise move that has rocked markets, Mexico’s President Andres Manuel Lopez has proposed Obrador Victoria Rodriguez, a deputy finance minister, to replace his initial nominee for central bank governor, former finance minister Arturo Herrera.

Mexico’s president has nominated a woman for the first time to run the central bank after she unexpectedly turned down the previous candidate, a move that derailed markets, pushed down the peso currency and raised uncertainty about monetary policy.

President Andres Manuel Lopez Obrador on Wednesday surprised government officials and proposed Victoria Rodriguez, a deputy finance minister, to replace his initial nominee for central bank governor, former finance minister Arturo Herrera.

The upheaval as Mexico battles the highest inflation in 20 years has confused investors, causing a sellout in Mexican assets, analysts said. At one point, the peso currency fell more than 2 percent against the dollar, although it later recovered some losses.

The cost of securing exposure to Mexico’s sovereign debt has risen to its highest since March, as five-year credit default payments rose by five basis points to 112 bps, according to IHS Markit data. Distributions to U.S. treasuries also rose to 365 bp, the widest since early October.

Rodriguez, who rose through the ranks of successive Mexican city governments when Lopez Obrador was mayor, kept a low profile in the finance ministry, and some analysts expressed concern that she would not be independent enough.

“I think that’s why the peso is falling out of bed. “People are worried that it is a detour for him (Lopez Obrador) to interfere with the central bank,” said Omotunde Lawal, head of corporate debt for emerging markets at Barings.

Lopez Obrador did not explicitly state what changed his mind. He said Rodriguez would act with independence, and that his government respected the bank’s autonomy.

Asked if Herrera had done anything wrong, Lopez Obrador said no, that he was committed to including women and that Rodriguez was the best option “given the circumstances”.

Lopez Obrador, who has clashed with the central bank in the past over the use of surpluses accrued from foreign exchange fluctuations, also rejected the suggestion that his change of heart could undermine Mexico’s currency.

“There has not once been any interference by the government, by the Ministry of Finance in the decisions of the Bank of Mexico,” he said. “And we will not do that either.”

Nevertheless, the peso performed significantly weaker on Wednesday than other major currencies in Latin America.

Rodriguez is set to replace incumbent Governor Alejandro Diaz de Leon, whose term will end at the end of 2021. Her nomination must be ratified by the Mexican Senate, which should be a formality given the government’s comfortable majority.

Lopez Obrador elected Herrera as head of the bank in June, and although some rumors have been circulating that his name could be withdrawn, officials greeted the news on Tuesday with surprise when a senior lawmaker announced the change of plan.

Rodriguez is poised to join the bank at a challenging time, with data showing that inflation accelerated faster than expected to 7.05 percent in early November, the highest level since April 2001.

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