Central Bank Governor of the Year for Latin America 2011
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Central Bank Governor of the Year for Latin America 2011

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Agustín Carstens, Mexico

Keeping interest rates on hold despite loud calls to tighten has turned out to be a prudent policy choice by Mexico’s central bank governor

If you were to look for one word to describe the governor of the Bank of Mexico’s approach to monetary policy, it would almost certainly be ‘stability’.

It’s the key role of any central banker, says Agustín Carstens – and all the more important during troubled economic times.

When Carstens took over at the central bank in early 2010, he did so amid mounting pressure to raise interest rates. Inflation was well above the bank’s 3% target, global growth rates were recovering, and policymakers across emerging markets were beginning to tighten to combat rising inflation and overheating economies.

Yet Carstens was not convinced that the output gap in Mexico would close as fast as many had anticipated.

He also reckoned that policymakers in developed markets, in particular in the US, would maintain their ultra-loose policy stance. Consequently, the bank’s benchmark lending rate has been steady at 4.5% throughout his time as governor.

Analysts who had called on him to raise rates for much of 2010 and early 2011 now acknowledge that his policy response has largely proved correct. Consumer inflation has fallen back towards the bank’s target, while GDP growth has stabilized.

Furthermore, US policymakers have maintained their ultra-loose policy stance, highlighting the potential dangers had Mexico hiked prematurely.

“The Fed and other advanced economies’ central banks have implemented a very lax monetary policy, and that has made our monetary policy relatively more tight,” he tells Emerging Markets. “So you could say that to some extent the expected tightening of Mexican monetary policy was done by the Fed,” he adds with a laugh.

With the global outlook darkening and the Fed perhaps poised to unleash another round of quantitative easing, he says that he is now ready to adjust interest rates downwards if necessary.

Any policy moves will, however, be clearly communicated and transparent, he insists. He says that one of his greatest achievements as governor was the decision to publish the minutes of the bank’s monetary policy committee meetings.

“Our job is to try to lend certainty and predictability to compensate for the vast degree of uncertainty that is present in both the Mexican and the global economy at present,” he says.

Carstens’ track record as governor – and previously as finance minister and a former IMF deputy managing director – has enhanced his international reputation. His global standing was boosted by his candidacy for the IMF managing director position after the resignation of Dominique Strauss-Kahn in May. It was a decision, he says, he took to highlight the need for emerging market policymakers to be “more fairly and fully represented in an institution like the fund”.

He says he is fully committed to guiding the Mexican economy through turbulent waters and is confident that despite a rise in organized crime, which he concedes has “created an element of uncertainty”, the economy remains on track for continued growth without the need for capital controls or exchange rate control measures. “Mexico has relative strengths, and I’m very hopeful that in the years to come, these will be clear from the higher rates of growth in my country,” he says.

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