By Marcela Ayres, Bernardo Caram and Lisandra Paraguassu
BRASILIA (Reuters) -Brazilian President Luiz Inacio Lula da Silva is moving swiftly to secure his next two nominations to the central bank’s board, seeking Senate approval for the new directors approved in time for the bank’s first policy decision of 2024, said three officials familiar with the discussions on Thursday.
Terms for the central bank’s directors of international affairs and institutional relations – Fernanda Guardado and Mauricio Moura – expire at the end of December.
Both were part of a minority group that voted for a smaller reduction of the benchmark interest rate in August, when policymakers kicked off an easing cycle after leaving rates unchanged for nearly a year.
Two of the sources, who requested anonymity to discuss confidential discussions, said Lula will meet next week with Finance Minister Fernando Haddad to review a list of potential candidates for each position.
The presidential press office did not immediately respond to a request for comment.
Brazil’s congressional recess begins Dec. 23, and the central bank’s first rate meeting of 2024 is scheduled for Jan. 30 and 31.
“It is essential to approve the names before the parliamentary recess (in December). If not, a Senate confirmation will only occur after March,” said a third source.
With the new picks, Lula, who took office in January with harsh criticism of the central bank’s monetary policy, will have four of his nominees among the central bank’s nine-member board.
The replacement of these positions is closely monitored by analysts, with the expectation that as Lula’s nominees gain more influence in the board, the central bank’s approach to fighting inflation may become more lenient. Policymakers acknowledge this perception as a potential hindrance to anchoring inflation expectations in line with the official target.
In its September policy meeting, the central bank cut its benchmark Selic rate by 50 basis points to 12.75% and signaled more cuts of the same size in upcoming meetings.
Although the median expectations of private economists surveyed weekly by the central bank suggest continued 50 basis- point cuts in the November, December, and January meetings, the yield curve is already pointing to smaller cuts from January.
The shift is broadly attributed to persistently high long-term interest rates in the United States, which may lure more capital away from emerging markets and fuel inflation in Brazil by weakening its exchange rate.
According to the sources, the government aims to avoid a prolonged appointment process, as seen with Lula’s initial nominations this year. The terms of former directors of monetary policy and supervising ended in March, but the names of Gabriel Galipolo and Ailton de Aquino were only submitted to the Senate in May, with approval taking place in July.
Under a 2021 law granting formal autonomy to the central bank, Governor Roberto Campos Neto will remain in office until December 2024. He assumed office in 2019 during the presidency of Jair Bolsonaro, who lost the October 2022 election to Lula.
Lula’s picks will form a majority after Campos Neto’s departure.
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