President Luiz Inacio Lula da Silva’s key nominee to Brazil’s central bank said financial markets have already priced in interest rate cuts this year and that his arrival to the board of the institution would not speed up the beginning of the easing cycle.
(Bloomberg) — President Luiz Inacio Lula da Silva’s key nominee to Brazil’s central bank said financial markets have already priced in interest rate cuts this year and that his arrival to the board of the institution would not speed up the beginning of the easing cycle.
Gabriel Galipolo, currently Finance Minister Fernando Haddad’s deputy, said on Wednesday that the swap rates curve, a key reference for monetary policy expectations, already shows investor bets on at least a quarter-basis-point cut to the benchmark Selic rate in September.
“The intention with the nomination of new board members is not to seek rate cuts next month, or in the short term,” he said in a TV interview. “There’s already an expectation in the market.”
Long-dated swap rates fell more than 20 basis points after his remarks, as traders became less concerned about imminent rate cuts that could result in faster inflation in the future.
The presentation of a bill aimed at shoring up public finances is among the reasons that would allow the central bank to cut rates, which stand at 13.75% since September, as part of the central bank’s campaign to lower above-target inflation expectations.
Haddad announced this week Galipolo’s nomination as director of monetary policy, which needs to be confirmed by the senate. He’s seen by members of the Workers Party as a candidate to eventually preside the bank. Current chief Roberto Campos Neto was named by former President Jair Bolsonaro and his term ends in December 2024.
Galipolo’s arrival to lead the department of monetary policy wouldn’t change the deep technical debate between different central bank areas, Economic Policy Director Diogo Guillen told O Globo newspaper when asked whether he expected more dissent among board members.
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Investors expected Galipolo to clarify his views on the so-called modern monetary theory, which asserts that some countries that borrow in their own currency shouldn’t be constrained by revenue to fund government spending. Those who support the theory tend to tolerate higher inflation in favor of lower rates that boost growth.
“My work is mostly academic and it can’t be identified” with the theory, he said. Galipolo reiterated his view on the need to “harmonize” monetary and fiscal policy so both “walk hand in hand.”
–With assistance from Beatriz Reis.
(Updates with comment from central bank director Diogo Guillen in eighth paragraph.)
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