Lula toned down his attacks against the Central Bank of Brazil

By Simone Iglesias and Beatriz Reis*

President Luiz Inácio Lula da Silva toned down his criticism of the president of Brazil’s central bank in an interview Thursday, in another sign that their frosty relationship is starting to thaw.

“The president of the Republic should not quarrel with the president of the Central Bank,” he said in an interview with CNN Brazil television network.

At the same time, Lula criticized the country’s financial sector for overreacting to his government’s measures.

Lula’s criticism of Central Bank President Roberto Campos Neto has sparked volatility in Brazilian asset markets in recent weeks, as have his plans to boost social spending.

“This market is very fragile and needs a little more seriousness,” Lula said. “It also needs to have a little bit of social responsibility.”

Lula has called on the central bank to reduce borrowing costs to boost economic growth while suggesting that the bank’s inflation targets of 3.25% this year and 3% for 2024 and 2025 are too low.

Last month, Lula questioned whether the central bank’s autonomy served the national interest.

This alarmed some investors, but the president appeared to backtrack somewhat, saying the bank’s autonomy should be judged by results.

“If the central bank’s independence brings something positive, there is no problem with it being independent,” he said.

He said he would analyze its autonomy, which it has had since 2021, when Campos Neto’s term ends at the end of 2024.

He said that Finance Minister Fernando Haddad will continue to work with Campos Neto and that it is important for the bank to reach its inflation target.

Earlier, Lula had called the Central Bank’s high interest rates a “disgrace” and urged businesses and entrepreneurs to complain about borrowing costs.

In an attempt to ease tensions, Campos Neto gave a rare television interview on Monday in which he said he wanted to work closely with Lula’s administration but also maintained that altering inflation targets now would be a mistake.

Brazil’s National Monetary Council, which sets inflation targets and consists of Campos Neto, Haddad, and Planning Minister Simone Tebet, did not announce altering the inflation target after its first meeting under the Lula administration on Thursday.

*With the collaboration of Maria Eloisa Capurro and Robert Jameson

With information from Blooomberg