Brazil’s central bank comments on monetary policy following its expected decision to keep interest rates unchanged threw a bucket of cold water on President Luiz Inacio Lula da Silva’s economic team, which expected clearer signs of an imminent monetary easing cycle.
(Bloomberg) — Brazil’s central bank comments on monetary policy following its expected decision to keep interest rates unchanged threw a bucket of cold water on President Luiz Inacio Lula da Silva’s economic team, which expected clearer signs of an imminent monetary easing cycle.
The much-awaited post-meeting statement, published by the central bank’s board on Wednesday to explain its decision to maintain the benchmark Selic at 13.75%, got rid of a pledge to resume rate hikes if needed but refrained from signaling when interest rates may start to fall.
“The decision makes no sense in this positive economic moment in which the government is demonstrating commitment to fiscal matters,” Institutional Relations Minister Alexandre Padilha said in a text message. “Lula’s government and congress have done their part to put Brazil’s interest rates on a downward path.”
Read More: Lula, Brazil’s Senate Step Up Pressure for Rate Cut Signal
The economic team considers that the document not only failed to clearly signal future rate cuts but also didn’t properly acknowledge government efforts to dispel uncertainty about Brazil’s fiscal outlook — one of the reasons cited by policymakers to justify high interest rates, according to two officials with knowledge of the discussion.
The central bank, whose aggressive monetary policy has been under intense fire from Lula, business leaders and politicians, seems to be willing to declare war on the government, said the people, requesting anonymity to discuss internal matters.
The central bank declined to comment.
The rate decision came on the same day that a group of more than 50 businesspeople who participate in Lula’s council for Sustainable Social Economic Development released a letter complaining about the monetary authority.
“We express our concern about the need for the central bank to start a process of rate cuts,” they wrote. “Without it, Brazil will not be able to resume growth.”
–With assistance from Maria Eloisa Capurro.
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