Will Brazil’s next cenbank governor stay firm or dance to Lula’s tune?

The Brazilian senate approved the nomination of Gabriel Galípolo as the country’s new central bank governor, with the key question now being how independent the young economist will be amid likely political pressure.

A total of 66 senators voted in favor and five against the appointment made by President Luiz Inácio Lula da Silva.

The 42-year-old Galípolo is currently the bank’s monetary policy director, and he will replace Roberto Campos Neto when his four-year tenure concludes at the end of the year.

Campos Neto was appointed by Lula's predecessor Jair Bolsonaro and Lula has repeatedly criticized the governor for his cautious stance regarding lowering the Selic policy rate amid still-high inflation.

"Often, as a society, we’re frustrated by advances taking place at a slower pace and a less linear trajectory than we desire. But I think that advances and obstacles correspond to the checks and balances of the democratic process, and the time needed for public debate and consensus building," said Galípolo during the senate session that saw the approval of his nomination.

Given that Galípolo was nominated by Lula, who wants the central bank to help the government in stimulating the economy, he faces a challenge in terms of gaining the market’s trust.

Until mid-year, the market was not at ease with Galípolo as some of his comments generated doubts over his will to combat inflation in the face of political pressure to cut the Selic, Luis Octavio Leal, chief economist at local asset management firm G5 Partners, told BNamericas.

"As he and other directors recently voted to hike interest rates, he built up some market confidence, but this is work that still needs to be done," said Leal.

Last month, the bank raised Selic rate from 10.5% to 10.75% due to higher inflation, and said it was ready to pull the rate trigger again if necessary.

The IPCA inflation index increased to an annual rate of 4.42% in September from 4.24% in August, the country's statistics bureau IBGE said on Wednesday. The central bank targets annual inflation of 3% with a tolerance range of 1.50-4.50%.

The main test for Galípolo will come towards the end of 2025 as the government will accept some Selic hikes next year due to high inflation but it will eventually start pressuring for monetary easing to stimulate economic growth, said Leal.