Tue. Dec 7th, 2021

The leadership of Mexico’s central bank was confused on Tuesday after Senate Majority Leader Ricardo Monreal said the leading candidate’s name had been withdrawn, sparking uncertainty over monetary policy in a time of high inflation.

The election of Arturo Herrera, former Minister of Finance under President Andrés Manuel López Obrador, was announced in June. He is expected to start in January, pending Senate confirmation.

Monreal said the government withdrew its nomination in August, but that it did not explain why, adding that Herrera could still be reappointed.

Herrera himself later confirmed on Twitter that the president had told him he had decided to reconsider his appointment, without providing further details.

The president’s office did not immediately respond to a request for comment, and has not made a public statement on the subject since the news broke.

Herrera was seen by investors as close to the president, but analysts said Tuesday’s news caused more concern about the economy. “There’s a lot of uncertainty, a lot of noise,” says Adrián de la Garza, chief economist for Mexico at Citi.

De la Garza said several names are doing the rounds as possible nominees should Herrera be out of the fight, including Raquel Buenrosto, head of the tax agency SAT, Gabriel Yorio, deputy finance minister, and the bank’s other board members. He believes any replacement for Herrera will likely be someone with relevant experience.

“It could potentially have an impact on markets in the very short term, but eventually the uncertainty should disappear.”

In December last year, the ruling party unleashed an outburst as it tried to pass a bill forcing the Bank of Mexico to buy dollars that banks could not repatriate. Rating agencies said the idea was credit negative for the sovereign and the bank itself pushed back hard. The plan was later rejected.

The news also came hours after the government issued a mandate to act quickly mega-projects and amid talks over a radical overhaul of the energy sector. López Obrador’s critics say the moves threaten the rule of law and independent institutions.

With inflation rising, the central bank raised rates for the fourth consecutive meeting earlier in November in a vote divided 4-1 among members. Herrera is seen by markets as more dove than the current governor Alejandro Díaz de León.

Mexico’s economy suddenly contracted in the third quarter showed preliminary data, with global chip shortages hitting the automotive sector and labor reform slowing growth.

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