Lula Chides Brazil Central Bank Head After Hawkish Rate Hold

Simone Iglesias and Maria Eloisa Capurro
·3 min read
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(Bloomberg) -- Brazil President Luiz Inacio Lula da Silva renewed his attacks on the country’s central bank chief the day after policymakers held interest rates steady at a six-year high while offering no indication that looser monetary policy is imminent.

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“It’s like everyone has to be careful and no one can talk about interest rates, except one man that seems to know more than 215 million people,” Lula said Thursday, referring to central bank president Roberto Campos Neto during a public event in Brasilia.

The event where Lula outlined his plan to relaunch a public council for economic and social development turned into a forum for his government to criticize the bank, with Finance Minister Fernando Haddad and Vice President Geraldo Alckmin each using speeches to argue that Brazil’s improving inflation outlook justified lower rates.

The bank’s decision was “very concerning,” Haddad said, because it had maintained high interest rates “even in an economy that today has one of the world’s lowest inflation rates, especially projected over time.”

Lula and his allies have bashed Brazil’s monetary policy since taking office in January. The leftist leader has said that current interest rate levels are “absurd” and argued that they fail to curb inflation while boosting unemployment. With the Brazilian economy expected to expand just 1% this year, high borrowing costs are the main obstacle to his campaign promises of renewed growth and prosperity.

Central bankers led by Campos Neto held the benchmark Selic rate at 13.75% for the sixth consecutive meeting on Wednesday, and reiterated that they would remain “vigilant” in their battle against inflation. They maintained that they won’t hesitate to resume a tightening cycle that raised rates by 11.75 percentage points over an 18-month period if necessary, although they said that scenario is now less likely.

Read More: Brazil Central Bank Resists Lula Sticking to Hawkish Stance

Annual inflation eased within the monetary authority’s tolerance range to 4.16% in early April, continuing a significant slowdown from last year’s peak above 12%. The government also presented a proposal to shore up public finances to congress in April, boosting hopes for rate cuts among key members of Lula’s Workers’ Party.

But central bankers said that “deanchored” inflation estimates in the long-term, along with the fact that core measures that strip out volatile items like food and energy are still running hot, require additional monitoring before they begin to ease rates.

“The Committee judges that the current scenario demands patience and serenity in the conduct of monetary policy,” they wrote in a statement released alongside their decision.

Lula’s fiscal bill was initially welcomed by markets before suffering a series of modifications that prompted concerns about the government’s plans to boost revenue by 150 billion reais ($29.9 billion). On Wednesday, policymakers led by Campos Neto stated there is no “mechanical relationship” between the presentation of a new fiscal framework and lower rates.

Haddad, who authored the spending plan, also said Thursday that he would continue his efforts to “harmonize” fiscal and monetary policy while maintaining an open dialogue with the central bank.

--With assistance from Bruna Lessa and Beatriz Reis.

(Updates with comments from Fernando Haddad and Geraldo Alckmin)

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