Mexico's Central Bank Is Bracing For America's Election Night

By Jorge Valencia
November 07, 2016
Rodrigo Cervantes/KJZZ
The Mexican peso and the U.S. dollar.

The head of Mexico’s central bank said top officials there are preparing contingency plans based off whomever wins the U.S. presidential elections, which could have an impact on that country's economy — at least in the short term.

Mexican leaders are well aware of Donald Trump’s plans. He wants to renegotiate or cancel trade agreements. He wants to tax remittances. And he wants to push American companies to repatriate their investments.

Juan Carlos Alderete, an analyst with Banorte in Mexico City, said investors don’t actually expect Trump to go through with his promises.
"Nevertheless, this negative shock would have at least a sizeable impact in financial markets in Mexico during the transition period," Alderete said.
In the short-term, nervous investors could pull out of Mexico, and the country’s currency could lose its value, said Gregan Anderson, an analyst with Bulltick Securities.
"That would be inflationary," Anderson said. "That would cause the price of imports in Mexico to rise, and so they would want to address that."
The Mexican central bank could raise its benchmark interest rates, in an effort to stabilize the value of the peso.
"Over the near term, it’s definitely going to be a currency play," Anderson said. "It’s going to be a currency issue that they’re going to be trying to address."
Not all economists agree Mexico’s plan is the best one. Geoffrey Smith, an international finance professor at Arizona State University, said central bank intervention may not be the country’s best strategy.
"Maybe that's not a good thing," Smit said. "How would they know what the correct amount of adjustment is? They have no way of knowing that."
So any long-term reaction to a Trump presidency wouldn’t come from the central bank. It would come from Mexico’s legislative branch. And if Hillary Clinton wins? Government economists in Mexico hope for what they call a status-quo.