BRASILIA (Reuters) -Brazil’s central bank chief Roberto Campos Neto on Tuesday stepped up his defense of the institution’s independence amid mounting criticism from leftist President Luiz Inacio Lula da Silva and his allies about overly high interest rates.
Campos Neto’s comments came shortly after the bank published minutes with a hawkish tone from its Jan.31-Feb.1 meeting in which it held rates at 13.75%. They underline growing tensions between Campos Neto, an appointee of former far-right President Jair Bolsonaro with two years left on his term, and Lula.
Lula has said the bank’s current benchmark rate is far too high given the country’s inflation trajectory and is causing an unnecessary drag on growth, raising investor concern about his commitment to the bank’s independence.
Speaking at an event in Miami on Tuesday, Campos Neto said the bank’s independence is “very important” as it disconnects the monetary policy cycle from the political cycle.
“The more independent you are, the more effective you are, and the less the country will pay in terms of cost of inefficiency in monetary policy,” he said.
Lula said at a breakfast with journalists on Tuesday that he didn’t want “confusion” nor “argument” with the central bank, but said Campos Neto should explain himself to Congress.
“I think people who believed central bank independence was going to change something in Brazil, that it was going to be better, have to look at whether it was worth it or not,” he was quoted as saying by news site Brasil 247.
The president’s office did not immediately respond to a request for comment about Lula’s speech.
Later on Tuesday, lawmakers from the leftist political party PSOL, a Lula ally, asked Congress’ lower house to summon Campos Neto to explain the central bank’s interest rate policy, claiming it “benefits rent-seekers and hinders the country’s economic recovery.”
The party will also present a bill later this week to revoke the central bank’s independence, it said in a note.
In its minutes published earlier on Tuesday, the bank said it was still wary of rising inflation expectations, reinforcing signs that monetary easing is not imminent. The bank said a fiscal framework revision and government stimulus package may lead to upward pressure on consumer prices.
The bank noted “with concern” that inflation expectations were drifting further from official targets over longer horizons. Market sentiment was possibly influenced by perceived policymakers’ leniency, expansionary fiscal policy and potential changes to inflation goals, it said.
Policymakers reaffirmed their commitment to meeting inflation goals.
Yet the bank also mentioned for the first time a package of fiscal measures presented by the government. Some committee members said the Finance Ministry’s package should mitigate fiscal risks, although “it will be important to monitor the challenges for its implementation,” the minutes said.
(Reporting by Marcela Ayres; Editing by Steven Grattan, Alexandra Hudson, Jonathan Oatis, Nick Zieminski and Cynthia Osterman)