(Bloomberg) -- Brazil’s Luiz Inacio Lula da Silva and members of his economic team were dismayed by the harsh statement published by the country’s central bank this week, three people with knowledge of the matter said, a signal that tensions between the independent central bank and the left-wing president are far from over.
The document, published Wednesday to justify the decision by the bank’s board to hold the key interest rate at 13.75%, did not reflect the softer message that central bank chief Roberto Campos Neto had conveyed in meetings with representatives of the finance and planning ministries, as well as members of Lula’s political team, the people said, asking for anonymity because the discussion isn’t public.
While no one expected the monetary authority to lower rates at this point, participants of those meetings were left under the impression that Campos Neto would at least acknowledge efforts by Finance Minister Fernando Haddad’s team to balance the 2023 budget and to introduce a new and credible fiscal rule for the coming years.
Not only were such efforts ignored by the central bank’s board, the people said, but policymakers also signaled that interest rates may have to remain at the current level for longer to ensure that inflation expectations return to targets — set at 3.25% for 2023 and 3% for the next couple years.
The central bank declined to comment. The finance ministry didn’t immediately reply to a request for comment.
Lula had started complaining about the central bank two weeks ago, calling its recently approved autonomy law “nonsense” and saying too tight inflation targets were “choking the economy.” That criticism escalated on Thursday, when he said in a TV interview that Campos Neto has to explain why he’s keeping interest rates at 13.75% when “we don’t have demand inflation.”
Read More: Brazil’s Rate Cut Prospects Dim After Hawkish Central Bank
Lula also said he would wait until the end of Campos Neto’s term in 2024 to make an assessment of the autonomy given to the monetary authority.
Still, there is no discussion in the economic team about changing the central bank’s autonomy law, two of the people said. According to one of them, Lula is making clear he is very upset, but he doesn’t want to hurt the credibility of Brazil’s economic policy. Instead, the president wants to send Campos Neto a message that he should be more of a team player, the person said.
--With assistance from Maria Eloisa Capurro.
©2023 Bloomberg L.P.
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