Heath, Esquivel confirmed for Mexico's central bank

Mexico's senate ratified the nominations of economists Jonathan Heath and Gerardo Esquivel to fill the two vacancies on the central bank's monetary policy board on Wednesday. Both are now set to vote on the board's next benchmark rate decision on February 7.

Heath will be taking over for Manuel Ramos Francia, whose term ended last month, for an eight-year term, while Esquivel will replace Roberto del Cueto, who retired in November claiming health problems, for the remaining three years of del Cueto's term.

While Ramos Francia's departure was expected, del Cueto's exit handed President Andrés Manuel López Obrador (AMLO) an opportunity to put two candidates on the policy board.

Citibanamex's most recent survey of private sector analysts, released Tuesday, shows deeply divided market sentiment. It found that 13 of 24 respondents expect the benchmark rate to end the year at the current 8.25%.

The division, however, likely stems more from uncertainty over the US Federal Reserve's expected rate hikes than the alignment of Mexico's two new deputy governors.

However, seven analysts called for an additional 25 basis-point hike to 8.50%, and of the four remaining, three see a 25bp cut by year-end and one even called for a cut to 7.75%.

When giving testimony before congress, both Esquivel and Heath commented that they would seek to enforce the central bank's mandate on price stability.

Additionally, neither would seek a change in the bank's mandate of inflation control, noted a sector comment from Banorte's economic analysis team. It added that the two confirmed their belief that price stability is the best way to contribute to economic growth and combat poverty and inequality.

"Considering the above, and taking into account their excellent professional careers, we hope that the position of both economists will give greater support to the prudent stance taken by the governing board in recent years," added Banorte.

Citibanamex in a note Thursday praised the economists "both with a remarkable academic and professional career," adding that they join the board at a moment when the market is carefully watching changes to the bank's autonomy.

"In the current context of uncertainty about many of [AMLO's] economic policies (e.g. compliance with fiscal targets) or of clearly negative signals in some of them (e.g. energy), Banxico's role as an independent institution has taken on greater importance," said Citibanamex.

"Going forward, the expectation of analysts (Citibanamex Survey) on average for the next seven years places inflation at 3.7%, below the [2003-2018 average of] 4.2%, although above the 3% [central bank] target," added the bank. "It is important today to highlight relevant causalities: inflation and its control depend to a large extent on inflation expectations; and these [depend] on the credibility of the central bank, and in turn, its autonomy."