Central bank independence crucial for economy, says Campos Neto By Reuters

2023-04-21 14:45:14

© Reuters

By Libby George and Jorgelina do Rosario

LONDON (Reuters) – Central Bank Governor Roberto Campos Neto said in London on Friday that the bank’s independence was crucial to the country’s economy, as political pressure mounts for it to cut borrowing costs. .

President Luiz Inácio Lula da Silva and other members of the government have been pressuring the BC to reduce reference interest rates, which are at 13.75%, the highest increase in six years. But Neto, speaking at the Lide Brasil Conference in London, defended the bank’s actions.

“What we do is for technical reasons, not political ones”, said Campos Neto, adding that lowering interest rates “only works on credit if there is credibility”.

“In the past we cut interest rates and, instead of increasing credit, it fell, because there was no credibility to make that move,” he said.

Campos Neto also stated that he does not believe that inflation is being driven by supply restrictions, defending the high interest rates and the technical targets that the bank is using to determine its actions.

Brazil has an inflation target of 3.25% for 2023, which will be reduced to 3% in 2024, but consumer prices reached 4.65% in the 12 months to March. The next meeting of the Monetary Policy Committee (Copom) will take place on May 2nd and 3rd.

Campos Neto said that the Brazilian Central Bank made the biggest increase in interest rates in world history during an election period, which “shows that the Central Bank is quite independent”.

“We were very independent during the (presidential) electoral process. If we had not raised interest rates during the elections, inflation would have been higher”, he defended.

Shortly before Campos Neto spoke at the London conference, Senate leader Rodrigo Pacheco openly criticized high interest rates during the same event, arguing that rates were hurting growth.

“I’m sure that the Central Bank will have a lot of capacity to reduce interest rates,” said Pacheco.

Campos Neto said he still does not think that the bank’s independence is threatened and added: “The debate on interest rates is a normal thing. We need to improve the communication of what we do, how we make decisions.”

Lula earlier this month hinted at a possible change in the inflation target, calling the country’s high borrowing costs “inexplicable”.

“The central bank’s timing is technical and different from political timing. The cost of fighting inflation is high, but the cost of not fighting it is much higher”, explained Campos Neto.