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IMF Candidate Carstens Gains Additional International Credibility

13 September, 2012

Bloomberg reported Friday that confidence is growing in Mexico’s central bank governor and current IMF candidate Agustin Carstens and his ability to control inflation and stabilize the country’s economy. The yield gap between government debt that is tied to inflation and fixed rate notes fell 114 basis points since March of this year to 3.52 percentage points,a fact that is used to estimate investor expectations for annual price increases. 

This four-month low is helping to curb fears of inflation and has caused many futures traders to push back estimates of when Carstens will increase the benchmark rate to December. Although other countries,such as Brazil and Chile,have increased borrowing costs to check inflation,Carstens has managed to keep Latin America’s second largest economy at a record low of 4.5 percent. In fact,Mexico’s inflation rate hit an five-year low in March of this year at 3.04 percent,and recently reached a mere 3.3 percent in May of 2011,which is still down 4.4 percent from the same period in 2010. 

According to Pablo Cisilino,who is a manager of more than $20 billion in emerging market debt at Stone Harbor investment in New York,Carsten’s credibility was enhanced when he “came out and said we’re going to stay put and inflation is not going to pick up,it’s going to come down. Something that you’ve been predicting happens,your credibility gets enhanced.”

According to Bloomberg,recent moves in the yield on Mexico’s 9.5 percent peso bonds have helped close the gap with inflation-linked bonds,a fact that sits well with international investment manager Kieran Curtis,who handles more than $3 billion in emerging market assets,such as peso debt,at Aviva Investors in London,who stated,“It definitely says that the market is perfectly happy with the way that Carstens is conducting monetary policy.”