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Lula Has Yet to Pick Chief of Central Bank He Sees as His Enemy

(Bloomberg) -- President Luiz Inacio Lula da Silva said he has yet to choose who will take the reins of a central bank he considers hostile to his government, adding his decision will be based on Brazil’s needs and not those of financial markets.

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The leftist president described Gabriel Galipolo, currently the bank’s director of monetary policy and a potential candidate to replace Governor Roberto Campos Neto in 2025, as “highly qualified,” but stopped short of announcing him for the position during an interview with local website UOL on Wednesday.


His criticism of the bank’s double-digit interest rates was becoming less frequent this year until it slowed the pace of cuts last month and halted its easing campaign last week. Following the decision, an outraged Lula called the bank’s chief a “political and ideological adversary” who he claims to be trying to undermine his government.

Campos Neto was appointed by former President Jair Bolsonaro to become the first central bank chief with a four-year mandate guaranteed by law. His term ends at the end of the year. He was among the board members who voted for a smaller rate cut in May, and has been warning the government that a balanced budget is a key pre-condition for lower interest rates.

That’s certainly a message Lula doesn’t want to hear. During the interview, the president said the government actually needs to boost public spending to pay for his social and infrastructure projects. “And while he didn’t rule out spending cuts that Finance Minister Fernando Haddad has called for, he also didn’t sound like he is considering significant reductions.”

“The problem isn’t having to cut, it’s knowing if you really need to cut,” he said, adding however that he’s “very careful” about inflation because he has experienced it himself.

For Haddad, who’s been struggling to keep his fiscal plan afloat amid defeats in congress, Lula had nothing but words of support. “Haddad is very important to Brazil and to me,” Lula said. “Of course I have disagreements with Haddad, but I trust him 100%.”

Lula’s comments on fiscal issues contributed to the weakening of the local currency and a rise in swap rates. The Brazilian real lost as much as 1.3% on Tuesday as rising Treasuries yields and a stronger dollar weighed on emerging-market currencies in general.

“The market is reacting to the statements of President Lula suggesting low appetite for spending cuts and downplaying the concern with Brazil’s high debt and fiscal deficit,” said Alberto Ramos, chief Latin America economist at Goldman Sachs. “The authorities miss the point that Brazil has a much higher debt load than relevant emerging-market peers, and economies with higher debt ratios than Brazil tend to be richer, with a higher savings rate, and much lower real rates.”

Ignoring Milei

Asked during the interview about his relationship with Argentina’s Javier Milei, Lula said he hasn’t called the libertarian president yet because he is still waiting for an apology from him. Both man traded barbs during Argentina’s 2023 presidential campaign, when Lula publicly supported Milei’s contender.

From Buenos Aires, Milei’s spokesperson had a quick response: “The president hasn’t done anything to be sorry about,” Manuel Adorni told reporters.

--With assistance from Bruna Lessa, Giovanna Bellotti Azevedo and Manuela Tobias.

(Updates throughout with Lula’s comments on fiscal matters and Fernando Haddad; adds market reaction and background.)

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