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Brazil's Lula threatens central bank autonomy after hawkish words

Published 02/02/2023, 07:26 PM
Updated 02/02/2023, 07:41 PM
© Reuters. Brazil's President Luiz Inacio Lula da Silva speaks during a meeting with governors, at Planalto Palace in Brasilia, Brazil January 27, 2023. REUTERS/Ueslei Marcelino

By Maria Carolina Marcello

BRASILIA (Reuters) -Brazilian President Luiz Inacio Lula da Silva on Thursday issued his latest threat to the autonomy of the country's central bank a day after it floated the possibility of keeping interest rates at a six-year high for a longer-than-expected period.

Lula, who had previously described central bank independence as "nonsense," said he could review its autonomy by the end of the term of the current central bank governor, Roberto Campos Neto.

Selected by right-wing former President Jair Bolsonaro, Campos Neto had his mandate extended to the end of 2024 under a new law established in 2021 granting the central bank formal autonomy.

The central bank's policy statement issued late on Wednesday specifically said it could keep its benchmark Selic rate at its current 13.75% for longer than markets expected due to fiscal risks under Lula.

"So I want to know what independence was for," Lula said during an interview with local channel Rede Tv. "I'm going to wait for this citizen to finish his mandate so that we can make an assessment of what the independent central bank meant."

"What is on the agenda is the interest rate issue," he added, suggesting that the central bank should seek a "Brazilian standard" for inflation rather than a European one.

© Reuters. Brazil's President Luiz Inacio Lula da Silva speaks during a meeting with governors, at Planalto Palace in Brasilia, Brazil January 27, 2023. REUTERS/Ueslei Marcelino

The comments were in line with previous comments by Lula suggesting that the current inflation target hinders economic growth.

Campos Neto has insisted that the central bank plans to act independently, adding that its formal autonomy gives it the capacity to stabilize markets.

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