AMLO's Reversal On Next Banco De México Governor Will Feed Investor Uncertainty

• Fitch Solutions believes that Mexican President Andrés Manuel López Obrador (AMLO)’s abrupt reversal of course on his nomination for the next governor of the Banco de México (Banxico) will further undermine investor confidence in policy direction. 
• The decision risks weakening investor perceptions of the central bank's independence and credibility as it faces persistent inflationary pressures. 
• While the potential impact on monetary policy is not yet clear, Fitch believes the decision adds to downside risks to Mexico's near-term growth outlook. It previously highlighted elevated inflation and rising interest rates as threats to consumption and investment over the coming quarters. However, this risk could grow as the deterioration of market confidence could feed into higher inflation through both a weaker exchange rate and higher expectations. 
• At the same time, the central bank could now face a more pronounced policy dilemma, in which raising rates threatens growth, but pursuing more dovish monetary policy risks further weakening markets and feeding inflation.

(Source: Fitch Solutions)