AMLO Denies Banxico Governor a New Term, Wants Social Focus

(Bloomberg) -- Mexico’s President Andres Manuel Lopez Obrador said Friday he won’t nominate central bank Governor Alejandro Diaz de Leon for a second term, potentially opening up a period of uncertainty for the traditionally conservative monetary authority.

The president, known as AMLO, said he will pick an economist with “a lot of prestige” and more attuned to Mexico’s social needs to lead the bank when Diaz de Leon’s term concludes at the end of the year. The Senate would need to ratify his nominee.

“It’s going to be an economist with a social dimension, one who is in favor of a moral economy,” Lopez Obrador said in response to a question by Bloomberg News at his daily press conference. He refrained from naming a successor.

While expected, the confirmation that the president won’t renew the term of Diaz de Leon may leave investors in doubt until he names a successor. By saying that the next governor would be focused on social issues, the president suggests he wants to shift the approach of the bank’s leadership after appointing three of the five members that form the board deciding on interest rates.

The Mexican peso briefly reached a session low after Lopez Obrador’s comments, extending the day’s loss.

AMLO, as the president is known, had been riled by the bank’s failure to send a foreign exchange surplus to the government in April. He singled out Diaz de Leon for criticism on Thursday, alleging he had an affinity with members of the previous government.

Read More: AMLO Assails Mexico Central Bank for Failing to Share Windfalls

The president’s announcement implies that Banxico will likely tolerate more inflation in the following months and years, said Carlos Capistran, an economist at Bank of America Corp.

It “gives support to the side of Banxico’s board that worries more about growth than inflation and anticipates a governor that also puts more weight on growth and less weight on inflation than Diaz de Leon, potentially much less weight to inflation,” Capistran said.

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