The annoyance of Luiz Inácio Lula da Silva (PT) and his ministers at the high level of interest rates in Brazil led the new administration to increase pressure on the central bank. The limits of the relationship are tested in the unprecedented scenario of a monetary authority commanded by names not indicated by the new government, and with autonomy in its functions.
On the other hand, the Central Bank has warned of the problems that the expansion of spending could generate on inflation, especially in view of higher spending in 2023 and the high uncertainty about the rule that will replace the spending ceiling – which will be proposed by April , according to government forecasts.
The exchange of messages between Lula, the members of the first echelon and the president of the BC, Roberto Campos Neto, has heated up in the last week and he explained the differences.
The president has come out publicly in recent days to criticize the actions of the monetary authority, to say that the autonomy of autarky is silly and to classify the current inflation target as exaggerated.
“It is foolish to think that the president of an independent BC will do more than the BC did when he was president [da República] he pointed it out,” he said. “Why, with the independent BC, is inflation like this and the interest rate like this?”
The tension arises because it is the first time that the autonomy of the CB has been put to the test in the face of a government that has not appointed councilors. Until 2024 Lula will have to live with the holder of autarchy appointed by former president Jair Bolsonaro (PL). Campos Neto, who has led the BC since 2019, has pledged to stay in office until the end of his term and has anticipated that he has no interest in a second.
In force since February 2021, in the Bolsonaro government, the autonomy law establishes a fixed four-year mandate for the president and councilors of the BC, renewable only once and not coinciding with that of the president of the Republic. The measure aims to reduce political interference in the institution.
“We will experience for the first time a year in which we will have a new government together with a BC president appointed by the previous one. So, we will have an adjustment period where any movement will want to be flagged as some kind of message or divergence,” says Carla Beni, MBA professor at FGV (Fundação Getulio Vargas).
The PT’s recent statements escalated against the BC, generated stress by putting pressure on market-negotiated interest rates, and forced the government itself to come out publicly and adjust its speech. It fell to Minister Alexandre Padilha (Institutional Relations) to say that the president will not act against the autonomy of the monetary authority.
Lula’s position, however, is not isolated from the government, and the finance minister himself, Fernando Haddad (PT), has exerted pressure on autarky by complaining about the level of interest rates. For him, the country is experiencing an “anomalous situation”, with “relatively low inflation and a real interest rate that is inadequate for an economy that has already slowed down”.
In an interview with reporters on the 12th, he added that it was a “game” that the government was “learning to play”. “In the past there was no independence from the BC, now there is, you have to understand,” Haddad said after presenting a package of measures to improve public finances, which he classified as a “letter to the BC”.
“We [Ministério da Fazenda e BC] exchanging letters until the day we celebrate greater understanding,” he said. The comment was made just days after the central bank sent a letter to Haddad justifying the bursting of the inflation target and saying it is following closely the government policy for the fiscal area.
Despite the tone, the holder of the portfolio stressed that he respected the independence of the municipality. “I must not be satisfied or dissatisfied with the BC, I must respect the institutionality, respect the independence that has been approved and look for ways to harmonize policies,” he said.
Per Marcos Mendes, research associate at Insper and columnist for SheetHaddad is “exceeding the limits of his prerogatives and repeatedly trying, through public speeches, to intimidate the central bank in order to induce decisions related to monetary policy”.
He specified that “it is for the Minister of Finance to deal with tax matters without creating a fuss or political conflict with the BC”, which, in his opinion, acts within its competence. “I don’t see the BC president or directors speaking outside of official tax policy documents or anything outside their purview.”
Luiz Fernando Figueiredo, former director of BC, sees a convergence of interests after Haddad declared that fiscal and monetary policies must work in harmony. “There’s a lot of things open, but I don’t think there’s a short circuit,” he says.
The chairman of the board of Jive Investments points out that the minister began his mandate in a fragile situation in the face of Lula’s statements on the existence of a conflict between fiscal and social responsibility, which were negatively received by the market.
“Haddad needs to speak up and do things that give a sense of stability to the front. He’s doing it correctly, it’s better to talk more than talk less, but it’s useless to talk one side and act the other,” he says.
Former BC chief Tony Volpon believes the finance minister would ideally not enter into interest rate discussions, citing the United States as an example. However, he acknowledges that, in the case of Brazil, there is a job of adaptation by “a left-wing government to the idea of having an independent central bank”.
For the economist, the tension between the government and BC could intensify in the coming months if there is frustration with the level of economic activity. If the deceleration scenario expected by the market is confirmed, he sees the government reviewing its prospects as a “good” alternative and working to give the CB the conditions to reduce interest rates responsibly.
The “bad” alternative, in his view, would be for the government to blame the monetary authority, talk about changing the inflation target and “wanting to change monetary policy out of frustration with economic growth and the outcome of its policy tax”. .
“I think it was a big part of the Dilma government disaster [Rousseff] in the economic area. Dilma was frustrated with the growth of 2011 and started to change many things, including a covert interference in the Central Bank in 2012. .
Despite the conjecture, he doesn’t see it as a “paid fight”. “For now, you can stay in this friendlier game,” she adds.
On Thursday (19), Campos Neto relativized Lula’s criticisms of the BC’s formal autonomy, arguing that in some interviews the information is taken out of context and resizing the president’s statements.
“I think he [Lula] it meant ‘I don’t think we need to have independence in the law, you can have independence without the law and make things work,'” the BC president said at an event at UCLA.
“But if you think about what’s going on in Brazil and how difficult the electoral process has been in Brazil, I think the market would be much more volatile if the BC didn’t have legal autonomy. That would be another element of uncertainty.”
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