President Luiz Inácio Lula da Silva on Thursday said he plans to appoint government-friendly members to the Central Bank’s monetary policy committee, in the latest development of an ongoing tug-of-war between the leftist president and the autonomous monetary institution over high interest rates. The Brazilian Central Bank has maintained one of the tightest monetary policies in the world since it started hiking rates to keep inflation in check.
At its latest meeting last month, Copom kept rates unchanged at 13.75 percent and gave a hawkish statement with no sign that a cut was on the cards in the near future while leaving the door open to further hikes.
President Lula has railed against the high rates, arguing that they stifle economic growth.
During a press conference with local journalists on Thursday, Lula once again attacked the bank’s monetary policy, saying he would appoint people who defend “the government’s interests” to the board of the Central Bank, the GloboNews journalist Julia Duailibi reported on Twitter. The president reportedly reminded that two spots will be up for grabs on the monetary policy committee next year.
Lula also suggested changing the inflation target to make it easier to meet. “If the target is wrong, change the target,” he is said to have replied to a question from Ms. Duailibi.
Such comments sour investor sentiment. “This is how you sabotage the credibility of a Central Bank,” tweeted Filipe Campante, an economist and professor at John Hopkins University. “And less credibility means more inflation, or higher interest rates to reach a given level of inflation. It’s the opposite of what the government needs.”
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