Mexico central bank chief could be shown the door

MEXICO CITY (Reuters) - Mexican central bank Gov. Guillermo Ortiz, who has aggressively fought inflation over the last decade, could be shown the door soon after clashing with President Felipe Calderon last year on interest rate policy.

Ortiz' six-year term ends on December 31 and Calderon said on Wednesday he had not decided whether the central banker should stay [ID:nN2583372].

The monetary policy chief, who is well-liked on Wall Street for bringing down inflation and bolstering the Banco de Mexico's independence from politicians, has not said publicly whether he wants to stay on for another term.

Removing him would likely be seen by investors as damaging to the central bank's autonomy.

Calderon criticized the central bank last year for keeping interest rates relatively high despite an inflation rate in Mexico that was similar to that of the United States.

A few weeks later in June 2008, the central bank started raising interest rates even as the economy slipped toward recession.

"The presumption is that Ortiz will not stay," said Raul Feliz, an economist and central bank watcher at the Center for Economic Research and Teaching in Mexico City.

"There have been a series of signals that suggest the personal relationship between him and the president is not good," he said.

The rate hikes of 2008 showed Ortiz would not bow to political pressure and Calderon's administration said it would respect the central bank's independence. However, Calderon appeared to throw more jabs at him.

In September of this year, Calderon urged Mexicans to save special edition 100-peso and 200-peso bills commemorating the nation's independence from Spain two centuries ago.

"At least this would lower how fast money circulates, containing inflation and the central bank's repressive intentions," Calderon said with a laugh at an event as Ortiz sat behind him.

Within a few months, Mexico's economy tanked as the financial crisis gripped its top trading partner, the United States. Ortiz responded by lowering interest rates during most of this year, though he was criticized in markets for being timid in launching the cutting cycle.

PROS AND CONS

On Wednesday, Calderon said Ortiz has done "good work," but that he has to weigh all the "pros and cons." If Calderon nominates Ortiz for another term, he would still need to be approved by the Senate.

"He's unlikely to remain," said an economist at a bank who asked not to be identified because the of sensitive nature of the subject.

As well being the lender of last resort for Mexico's banks, the central bank has a role in regulating them.

Ortiz has run the central bank since 1998 and has overseen a fall in inflation from 15.3 percent to as low as 2.9 percent in 2005. Consumer prices rose 4.5 percent in the 12 months through October 2009.

The central bank is seen holding interest rates steady on Friday, its last scheduled policy review of the year [ID:nN25362653].

In 2005, Ortiz instituted a policy at the central bank to set a reference level for the overnight interbank interest rate, making Mexico's monetary policy more similar to that used by the U.S. Federal Reserve or the European Central Bank.

If Ortiz does not return to the central bank next year, many analysts think his likely replacement would be Calderon's finance minister, Agustin Carstens.

Carstens is well known and respected in financial circles after serving as the deputy managing director at the International Monetary Fund between 2003 and 2006. He received his doctorate in economics at the University of Chicago.

"But even if they put in somebody as qualified as Dr. Carstens, it would send a signal that the central bank will probably be less independent," said Abel Hibert, an expert on Mexico's central bank at Mexico's Tecnologico de Monterrey university.