Brazil govt growing its influence within the central bank

Brazil’s government nominated Gabriel Galípolo central bank monetary policy director and Ailton Aquino inspection director, expanding its influence within the monetary authority.

Galípolo (pictured) and Aquino replace Bruno Serra Fernandes and Paulo Souza, whose terms expired in February. The nominations must be approved by the senate.

"Looking into the profile of the appointments, we see that the government … places more emphasis on economic growth than on control of inflation," Luciano Rostagno, chief Latin America strategist at Banco Mizuho do Brasil, told BNamericas.

The central bank is led by eight directors and one governor, which determine the Selic policy rate every 45 days. In 2021, the bank became independent, with directors serving fixed terms.

But President Luiz Inácio Lula da Silva has repeatedly criticized central bank governor Roberto Campos Neto for his focus on inflation and for keeping the Selic rate high, currently at 13.75%, even though inflation is decelerating.

While the government claims the high rate suffocates growth, the bank said it is needed as response to elevated public spending.

The terms of international director Fernanda Guardado and relationships director Mauricio Moura expire in December and two more directors will leave next year. Campos Neto’s term expires at the end of 2024.

"As the terms of other directors expire and government nominations gain traction, we will see more government power within the central bank. With that, we tend to see [next year] a central bank working to more drastically reduce the interest rate, which was always the government's intention," added Rostagno.

Galípolo is currently the favorite to replace Campos Neto.

"We would not be surprised to start to see split [rate committee] decisions and diametrically opposed views within the [committee] on what the proper policy stance should be. Furthermore, the perception that Galípolo will eventually replace Campos Neto has the potential to generate some friction and uneasiness," Goldman Sachs wrote in a report.