Lula Tones Down Attacks on Brazil Central Bank as Relations Thaw

(Bloomberg) -- President Luiz Inacio Lula da Silva toned down his criticism of Brazil’s central bank chief in an interview Thursday, in another sign that their frosty relationship is starting to thaw.

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“The president of the republic shouldn’t be fighting with the president of the central bank,” he said, speaking with CNN Brazil TV.

At the same time, Lula slammed the nation’s financial sector for overreacting to his government’s actions. Lula’s criticisms of central bank President Roberto Campos Neto have triggered volatility in Brazilian asset markets in recent weeks, as have his plans to boost social spending.

“This market is very fragile, and needs to be a little more serious,” Lula said. “It also needs to have a bit of social responsibility.”

Lula has been calling on the central bank to cut borrowing costs to boost economic growth, while also suggesting that the bank’s inflation targets, which sit at 3.25% this year and 3% for 2024 and 2025, are too low.

Last month, Lula questioned whether the central bank’s autonomy served the national interest. This alarmed some investors, but the president appeared to dial that back somewhat, saying that the bank’s autonomy should be judged by results.

“If central bank independence brings something positive, there is no problem with it being independent,” he said.

He said he will analyze its autonomy, which it has had since 2021, when Campos Neto’s term ends at the end of 2024. He said Finance Minister Fernando Haddad will continue to work with Campos Neto, and that it’s important that the bank hit its inflation target.

Lula had previously called the central bank’s high interest rates an “embarrassment” and urged companies and entrepreneurs to complain about borrowing costs. In a bid to ease tensions, Campos Neto on Monday gave a rare television interview in which he said he wanted to work closely with Lula’s administration, but also maintained that altering inflation targets now would be a mistake.

Brazil’s National Monetary Council, which sets inflation targets and is made up of Campos Neto, Haddad and Planning Minister Simone Tebet, didn’t make any announcement on altering the inflation target after its first meeting under Lula’s government on Thursday.

Read more: No News Is (Almost) Good News on Brazil Inflation Targets

--With assistance from Maria Eloisa Capurro and Robert Jameson.

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