An ‘adverse’ US election result could severely impact country where Trump has threatened to build a border wall and end trade deals, Central Bank governor said
Mexico is readying a contingency plan for an “adverse” election result in the US, said the Central Bank governor, Agustín Carstens, who has previously stated that a victory for Donald Trump would hit his country like a hurricane.
“If the adverse situation materializes it’s foreseeable that the Mexican authorities respond in some way. It’s a contingency plan that we’re discussing with the finance ministry, we hope we don’t have to use it,” Carstens told Milenio television late on Wednesday.
Without naming the Republican nominee, Carstens said there was an “adverse” candidate for Mexico in the election, which is due to be held on 8 November. He also noted there could be market volatility following the vote, regardless of the victor.
“Either way, we the authorities would need to adjust our policy position if it’s necessary,” he added.
Carstens did not provide details of the contingency plan.
Trump’s threats to tear up a trade deal with Mexico, build a huge border wall and his attacks on US companies investing in the country have spooked investors, hurting the peso.
Interest rate increases and interventions in the market have been Mexico’s main tools to support the peso.
Senior officials from the Bank of Mexico, as well as the finance and economy ministries, were holding discussions on Wednesday about US election scenarios, an official said ahead of the talks, speaking on condition of anonymity.
Economists at 4Cast said on Thursday they believed the Bank of Mexico will attempt to smooth the transition to a Trump presidency using a combination of currency reserves and rate hikes, possibly to the tune of 150 basis points.
On Wednesday, the finance minister, José Antonio Meade, said when volatility is caused by global concerns, such as jitters over the US election outcome, intervening in the market would be like “pouring drops of water into the ocean”.
“It is not an instrument that would work,” he said.
Carstens has said monetary policy could change depending on the US election result, noting that a favorable outcome for Mexico might obviate the need for the Bank of Mexico to follow any impending US rate hike.
On 30 September, Carstens likened a Trump win to a hurricane hitting Mexico, and said a victory for the Democratic candidate, Hillary Clinton, would be better for the economy.
Senior officials from the Bank of Mexico as well as the finance and economy ministries were holding discussions on Wednesday about what impact the US election could have, an official said ahead of the talks, speaking on condition of anonymity.
Maintaining Mexican inflation close to its target rate would be the central bank’s “guiding principle” going forward, Carstens said. The bank targets inflation of 3% with a one percentage point tolerance zone on either side.