Brazilian President Luiz Inácio Lula da Silva has chosen Gabriel Galipolo as the next head of the central bank, consolidating the head of state’s influence over an institution he has criticized for keeping interest rates high.
Galipolo, a 42-year-old economist and current director of monetary policy at the bank, will replace Roberto Campos Neto, whose term ends in DecemberFinance Minister Fernando Haddad announced on Wednesday. The appointment must be approved by the Senate after a hearing expected to take place on September 10, according to the economic affairs committee.
The new governor toHe will take over a bank that is struggling with rising inflation forecasts in Latin America’s largest economy.. This month, policymakers unanimously said they would not hesitate to raise rates if necessary, marking a significant shift in guidance after pausing a cycle of monetary easing in June.His vision clashes with Lula’s demands to cut borrowing costs to help boost economic growth and improve Brazilians’ living standards.
“Galipolo has been trying to build his credibility, showing that he agrees with other board members on the need to raise interest rates if necessary,” said Anna Reis, chief economist at Gap Asset in Rio de Janeiro. “That will take time, Galipolo will have to prove over time that it has been guided by technical criteria and that it is not susceptible to political pressure.”
LThe decision will strengthen Lula’s influence among the bank’s top brass, given that he has already appointed four of the nine board members.Following today’s announcement, he will also be able to appoint two additional directors and take Galipolo’s place.
Analysts surveyed by the central bank estimate that Annual inflation will remain above the 3% target at least until 2027Consumer prices have been pressured by a combination of higher government spending, a weaker currency, a tight labor market and stronger-than-expected economic activity.
While most analysts believe rates will remain stable at 10.5% until the end of 2024, Traders and some economists are betting that there will be increases as early as September.
Campos Neto, appointed in 2019 by right-wing former President Jair Bolsonaro, has been the most affected by Lula’s anger towards monetary policy. More recently, he called the former head of Banco Santander’s trading desk a “political adversary” who “does not respect” the Brazilian middle class.
Lula’s allies hardened their criticism of Campos Neto after he was seen voting in a Brazilian soccer jersey typically worn by Bolsonaro supporters. This year, he participated in a ceremony in his honor organized by Sao Paulo state governor Tarcisio de Freitas, widely seen as Bolsonaro’s political heir.
On the contrary, Galipolo advised Lula during his last presidential campaign and worked closely with Haddad as its deputy secretary before joining the central bank’s board in 2023.
Galipolo became one of the president’s go-to people when he sought to understand the reactions of financial markets to his statements about the economy. As Lula grew increasingly irritated by high rates, it was Galipolo who sat in on key meetings at the presidential palace to argue in favor of the inflation target.
Unlike many of Lula’s confidants, Galipolo does not come from the Workers’ Party nor does he have a decades-long relationship with the president. While the head of state rose to fame as a union leader, Galipolo has experience leading a local bank and has honed his ties with investors in his current role.
However, lFinancial markets remain concerned that the monetary authority may become more lenient with inflation once Galipolo and the new board members take office. In a controversial split vote in May, Galipolo sided with the other bank directors appointed by Lula in backing a bigger rate cut, even as inflation estimates were rising rapidly.
That decision sparked a backlash from investors and caused local assets to plummet. The board members have since voted unanimously, stressing that There is a consensus on its economic outlook and the need to control increases in consumer prices.
“Galipolo does not have the traditional profile of a central banker,” said the central bank’s former director of international affairs Tony Volpon before the announcement. “There is still a great deal of mistrust on the part of market players, and Its first moves will be crucial to establishing its commitment to the inflation targeting regime. and how strictly you will adhere to those rules.”
Galipolo himself has advocated a unified front, noting that he would not intervene in the currency without the full support of the board.In recent public speeches he has also said that the bank should not add volatility to markets, indicating a cautious approach to monetary policy.
Impossible job
Monetary policy is likely to remain politicized after Campos Neto’s departure, however. Traders will be scrutinizing Galipolo’s decisions and judging his rate decisions based on their compatibility with Lula’s calls to revive the economy.
“Lula believes his mandate will be different from that of Campos Neto, and the party expects a more moderate behavior at a time when investors are showing extreme distrust“It’s an almost impossible task,” said Thomas Traumann, a communications consultant in Rio de Janeiro.
This distrust is largely due to the problems that occurred during the government of Dilma Rousseff, Lula’s protégé. During her government, more than a decade ago, theInvestors perceived that the central bank was aiming for an inflation rate higher than the official targetwhile at the same time the administration boosted public spending and subsidized credit through state banks.
Those efforts to boost the economy ended up being counterproductive and caused rampant inflation.and then a deep economic recession.
“So far the bank’s autonomy has been maintained,” said Traumann, the communications consultant. “Every decision taken at the start of the next central bank administration will be seen as either for or against Lula.”
