Brazil's central bank chief's nominee emphasizes independence, according to a Reuters rating

Hosted by Marcela Ayres

BRASILIA – The one chosen by the President of Brazil, Luiz Inacio Lula da Silva, to lead the central bank, Gabriel Galipolo, said that the leftist leader emphasized and was clear in ensuring freedom in decision-making.

Considered an outspoken economist with direct access to Lula, Galipolo, currently the central bank's monetary policy director, is seeking to ease market concerns about his possibility of easing inflation if pressured by the president.

Speaking at a Senate committee hearing, where his nomination to lead the bank from next year was unanimously approved on Tuesday, Galipolo reiterated the commitment to follow the 3% inflation target and noted that policymakers are concerned about unconfirmed expectations of consumer prices.

“It is on the shoulders of the central bank to achieve this goal without any doubt by keeping the interest rate at a moderate level for a long time if it is necessary to achieve it,” he said.

Galipolo's appointment still needs to be approved by the full Senate, which is expected to vote later on Tuesday, said the chairman of the Senate economic affairs committee, Vanderlan Cardoso.

Galipolo acknowledged that Brazil's annual core inflation is on par with that of stable countries like the US, while noting that Latin America's major economies are not slowing down, which is why inflation should be slower and more expensive.

But Galipolo said that while current data such as inflation and labor market figures are important, the central bank's focus is on the longer-term horizon.

“There is inflation in the right place that worries us,” he said, referring to a trend that economists consider to be indicative of a possible acceleration in the pace of interest rate increases.

Galipolo, along with the rest of Copom's rate-setting board, voted last month to start a tightening cycle, raising interest rates by 25 basis points to 10.75%.

Before the decision, when his nomination became public, Lula said of policymakers: “If they need to raise interest rates, they should raise interest rates.”

The comments were seen as a change following continued calls for lower borrowing costs to support the economy and investment.

Annual inflation in Brazil in mid-September reached 4.12%, while the expectation of independent economists polled weekly by the central bank is for inflation to reach 4.38% this year, 3.97% next year and 3.60% in 2026, in all cases beyond the legal target.

DISRUPTION OF MARKETS

Galipolo's connection with Lula, who he accompanied to Mexico last week for the inauguration of President Claudia Sheinbaum, has raised doubts among many market participants since he was first appointed to the position of the central bank last year.

Galipolo previously served as secretary general of the Ministry of Finance under Lula, and has been the bank's monetary policy director since July 2023.

Markets initially expressed concern about his lack of technical expertise and opinions on issues such as the need for state intervention to prioritize public needs and the proposal that the central bank can act on the entire production sector.

Galipolo has since overcome initial opposition to take over from current Governor Roberto Campos Neto, a nominee of former right-wing President Jair Bolsonaro. Neto has faced heavy criticism from Lula since the president took office in January 2023.

Jefferson Laatus, chief strategist at the Laatus Group, said the market's worries will not go away anytime soon. “We will know for sure about it in January, at the first meeting you will have as manager,” he said.

Asked about the financial independence of the central bank, a proposal opposed by the Lula administration but supported by Campos Neto, Galipolo said the current discussion shows “great progress.”