- 03 Jan 2025
After months of rancour, ties between President Luiz Inacio Lula da Silva and Brazil’s central bank look poised for an era of sweetness and light – which is precisely what worries some investors.
Gabriel Galipolo, 42, is set to take the reins at the bank on Wednesday. The former deputy finance minister has earned a reputation for economic views that sometimes stray from his predecessor’s embrace of free markets but warm the hearts of left-leaning politicians.
It may test the new formal independence of that institution, six of its former directors told Reuters.
Galipolo takes over from central bank governor Roberto Campos Neto, an appointee of former President Jair Bolsonaro, in the first transition since a 2021 law that required heads of state to wait two years before naming their own central bank chief, in a move designed to boost the bank’s autonomy.
The handoff will be scrutinised after frustration with government spending plans triggered a market meltdown, sending Brazil’s risk premium surging and its currency to all-time lows, according to Reuters.
Galipolo and Campos Neto have played down their differences and vowed continuity at a shared news conference on Dec.19.
Now leading the country in his third nonconsecutive term, Lula praised Galipolo in a social media video on Dec.20, vowing fiscal discipline and a hands-off stance toward the central bank.
Concerns remain, however, about a shift in monetary policy, dating back to a split policy decision in May when Galipolo and three other Lula appointees voted for a larger rate cut than the Bolsonaro-appointed majority. Starting in January, Lula’s picks will hold seven of the nine seats on the central bank’s rate-setting committee, or Copom.
Despite the united front and hawkish rhetoric from Galipolo, who has pledged independence from Lula, some economists say the market remains unconvinced.
“The forward guidance was issued precisely because there are concerns,” said former central bank director Alexandre Schwartsman, appointed during Lula’s first term in 2003. “It’s a symptom, a recognition there are serious doubts about how (Galipolo) will behave, whether he will truly be independent or not.”
“We’ll see the true outcome after March,” he added. “Until then, the ghosts of Copom past will hold sway.”
One such phantom is that of Alexandre Tombini, the last central bank governor appointed by Lula’s leftist Workers Party. On his watch in late 2012, Copom cut rates and kept them at a record low despite inflation shooting away from the official target, the Reuters report adds.
Many economists criticised Tombini for ceding to pressure from then-President Dilma Rousseff to keep borrowing costs low, adding to imbalances in Brazil’s economy that eventually tipped the country into its worst recession in decades.
Lula’s allies instead cite his relationship with Henrique Meirelles, whom he tapped to run the central bank during his first two terms from 2003 to 2010 when aggressive monetary policies eventually paved the way for a robust economic boom.
With less than two years before the next election, aides say Lula has been especially impatient about obstacles to economic growth, including high interest rates.
Campos Neto has said central bank officials can be close to political actors while maintaining their independence.
Galipolo joined Lula for bilateral meetings with foreign heads of state in Rio de Janeiro during a summit of the Group of 20 major economies in November and tagged along with Finance Minister Fernando Haddad for meetings in Washington the month before, the kind of events from which Campos Neto was notably absent.
Still, opposition lawmakers have praised Galipolo’s qualifications and a Senate committee unanimously approved his nomination.
