Lula criticizes Central Bank sees exaggeration in inflation target – 01/18/2023 – Market

President Luiz Inácio Lula da Silva (PT) criticized this Wednesday (18) the performance of the Central Bank, questioning the current level of interest rates and classifying the autonomy of the monetary authority as “nonsense”. In addition, he considered the current inflation target to be pursued by the municipality to be exaggerated.

For Lula, the current inflation target —of 3.25%, with a tolerance margin of 1.5 points up or down— obliges the Central Bank to implement an economic squeeze by raising interest rates at a time when the Brazil needs to grow.

Lula gave an interview to GloboNews aired this Wednesday afternoon (18). He criticized the BC when asked about changes in the Brazilian fiscal framework.

“In this country, they fought a lot to have an independent Central Bank, what would improve? I can tell you from my experience: it is silly to think that the president of an independent Central Bank will do more than the Central Bank did when the president [da República] was the one who recommended it”, stated Lula during the interview.

“I doubt that BC president [Roberto Campos Neto] be more independent than was the [Henrique] Meirelles. I doubt it. Why, with the BC independent, is inflation the way it is and interest rates are the way they are?”, questioned the president.

Henrique Meirelles was the president of the Central Bank during Lula’s first two terms, between 2003 and the end of 2010.

The Brazilian Central Bank, in fact, is not independent, but autonomous. In 2021, the National Congress approved the autonomy of the bank, a measure that seeks to reduce political interference in the institution. One of the main measures is that the president of the BC and his directors now have a fixed term of four years.

Independence would be a step further and exists when central banks have the power to define, themselves, their goals and objectives; in addition to having operational freedom to define how they will act to achieve them.

Lula then also criticized the current inflation target, arguing that the index ends up barring Brazilian economic growth.

“You set an inflation target of 3.7%. When you do that, you have to tighten the economy more to reach that 3.7%. Why did you need to do 3.7%? Why not 4.5%, like We did [nos seus mandatos anteriores]? The Brazilian economy needs to grow again,” said the president.

The inflation target is defined by the CMN (National Monetary Council), which has three votes. During the Bolsonaro government, the chairs were occupied by the Minister of Economy, the special secretary of Treasury and Budget of the portfolio and the president of the Central Bank.

The target for this year is 3.25% and, for 2024, 3%. There is a margin of 1.5% up or down.

As he had done before, Lula used the results of his first two governments to point out that he is not against fiscal responsibility and asked, based on that, for people not to demand it from him. He also signaled that it is necessary to “make fiscal policy, guarantee that we will not spend more than we earn”.

However, he also stressed that it is necessary to comply with social obligations.

“Don’t ask me for fiscal seriousness. What I want is that people who ask for fiscal stability have social responsibility. starving people,” he said.

The president also stated that he wants to discuss with the productive sector, mentioning by name Fiesp, investments in the Armed Forces for the development of new technologies and the defense industry.