Mexican Central Bank Head Quits Amid Fears Over "Trump Impact"

In one of the day's more puzzling developments, the Mexican peso tumbled on news that the head of the Mexican central bank, Augusten Carstens, who several years ago competed against Christine Lagarde for the top IMF post, announced he would unexpectedly stand down from his post next July. The term of the 58-year-old Carstens, who headed the central bank since 2010, was due to conclude at the end of 2021, which makes today's announcement particularly surprising.

Carstens, a former Mexican finance minister respected by international investors, will leave to take the top job at the Bank for International Settlements in October for a five-year term - for more on the BIS, read "Meet The Secretive Group That Runs The World."

He is known as a savvy political operator who rose from being the central bank's chief economist in the 1990s to hold senior posts in the finance ministry. As head of the central bank, he presided over Mexico's recovery from the global financial crisis and helped keep inflation low in a country that had suffered a string of economic mishaps in previous years.

The peso, which has plunged in recent weeks on by fears surrounding the Trump presidency, tumbled more than 1% on the news, hitting its lowest since mid-November, however it has since recovered modestly.

"It was shocking," Ernesto Revilla, an economist at Banamex, said of Carstens' departure cited by Reuters. "There were rumors of this, but no one was expecting it to happen so soon, especially with the new Trump scenario." Revilla added that "Agustin has been a pillar of economic policy in Mexico." He added that the peso suffered on Thursday because "there is no clear successor at the central bank ... There is no one on the top of peoples' minds of who could take his place," he added.

According to Reuters, among possible candidates economists named were Alejandro Werner, a former deputy finance minister who holds the top post for the Western Hemisphere at the International Monetary Fund, as well as current deputy central bank governor Manuel Ramos Francia, who is less well known in global financial circles. Former Finance Minister Luis Videgaray, a close ally of President Enrique Pena Nieto, is also seen as a potential replacement, though he is a divisive figure in Mexican politics.

So why the sudden announcement? Among the theories emerging is that Carstens has had enough dealing with the unpredictabilities in the political climate, especially since the Trump election, and wanted out. During the presidential campaign, Carstens had warned that Trump's election could hit Mexico like a hurricane; he also conducted a stress test for local banks to prepare for the "contingency" of a Trump presidency.

Following Trump's victory, Carstens followed the crowd in changing his tune, and suggested the next U.S. government's impact could be less severe. However, today's announcement confirms he was less than sanguine about a Trump presidency, and the impact it would have on the Mexican currency and economy, and opted out.

TO be sure, he is not along. Most members of the central bank's board are concerned that uncertainty about new economic policies under Trump could further hammer the peso, according to minutes from the central bank's board last meeting released earlier on Thursday. "Going forward, the majority agreed it's possible that the ... recovery won't be sustainable due to the aforementioned uncertainty surrounding the economic policies of the new administration of the U.S. government," the minutes said.

Among other things, Trump has threatened to rip up a free trade deal with Mexico during the campaign and any such move could hit Mexico's economy, which sends around 80% of its exports to the United States.

Joining other nations eager to prop up their currency against the soaring dollar (and failing), Mexico's central bank raised its main interest rate by 50 basis points to 5.25 percent on Nov. 17, the fourth hike this year to support the peso, which hit a record low after Trump's win. It is down more than 20 percent this year. More hikes will be needed.