A bastion of stability and orthodoxy in unpredictable times
Since being appointed governor of the central bank of Mexico (Banco de México, or Banxico) in November 2017, Alejandro Díaz de León has faced fire from all sides.
Yet as investors evaluate the challenges facing Mexico — whether global volatility affecting the peso, changing US policy toward Mexico, or certain policies of left-wing president Andrés Manuel López Obrador — they see Díaz de León as a comforting presence.
One EM bond investor goes further, telling GlobalMarkets that Banxico is “the number one reason Mexico has staved off a currency crisis” despite internal and external headwinds.
Díaz de León tells GlobalMarkets Mexico was facing a “peculiar mix of circumstances”. “We have had a complicated few years and have needed to have a strong, prudent stance on monetary policy,” he said. “When facing shocks and uncertainty, we also need very strong communication.”
The governor highlights novelties in the bank’s communication, including allowing dissenting voters on the board to offer their views and “explaining our reaction function as best we can”.
Shelly Shetty, head of Latin American sovereign ratings at Fitch, says that Díaz de León’s handling of a “difficult situation” has been “very good”.
“In the face of recessionary conditions, difficult domestic and external shocks, new people on the bank’s board, and calls to lower rates more quickly, he has been able to get inflation under control and retain credibility,” she says.
Indeed, in December 2017 inflation in Mexico hit 6.77%, its highest level since the central bank introduced its 2%-4% target range. Yet in June this year, it returned to the range and has continued to ease, allowing Banxico to cut its policy rate for the first time in over five years in August. This space for monetary easing was reward for previous steadfast hawkishness.
“Under the current governor, Banxico has done a very good job in anchoring inflation expectations and continuing to ensure the credibility required of a central bank,” says Álvaro Vivanco, Latin America strategist at NatWest Markets.
“The peso has been driven by long-term fundamentals and the foreign positioning in Mbonos [domestic government bonds] has been stable, which is quite impressive given the challenges Mexico has faced.”