Brazil’s Central Bank chairman calls for investor goodwill with Lula

Roberto Campos Neto, the chairman of Brazil’s Central Bank, once again extended an olive branch to the government on Tuesday. During an event organized by investment bank BTG Pactual, Mr. Campos Neto said that the market should show more “goodwill” towards the Luiz Inácio Lula da Silva administration.

“Investors are very hasty, very eager. We need to have a little more goodwill with the government,” said the chairman. “Forty-five days is not enough time” to evaluate the new administration’s performance. 

Echoing his words in a flagship Monday night interview program, Mr. Campos Neto again praised positive signals given by Finance Minister Fernando Haddad — who pledged to present a new fiscal anchor for the government. During the interview, the chairman said multiple times he is willing to have the Central Bank cooperating with the Lula administration.

Mr. Campos Neto has been publicly attacked by President Lula and his allies, who say Brazil’s 13.75-percent benchmark interest rate is too high and risks plunging the country into a recession. On Monday, the Workers’ Party reportedly pledged to summon the central banker to explain Brazil’s monetary policy before Congress.

Later this week, the National Monetary Council will convene. The council is formed by the central banker, the finance minister, and Planning Minister Simone Tebet. Mr. Haddad has defended a higher inflation target than the current 3.25 percent, with which Mr. Campos Neto disagrees.

The chairman believes that changing the inflation target “could be a shot in the foot.” By creating uncertainty over expectations, a higher target could increase risk premia for investors — making interest cuts even less likely.

Assuming Mr. Haddad would vote for a higher target, Planning Minister Simone Tebet would then have the tie-breaking vote. On Monday, she said a reform of the tax code is “the only silver bullet” to allow Brazil to escape its economic quagmire.

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