Brazil’s Central Bank Head Extends Hand to Lula, But Maintains Key Demands

In a TV interview, Roberto Campos Neto expressed a desire for good relations with President Lula’s economic team while upholding two demands: cutting interest rates and raising the inflation target

Roberto Campos Neto. Photographer: Andre Coelho/Bloomberg
By Maria Eloisa Capurro
February 17, 2023 | 12:29 PM

Bloomberg — With Brazil’s monetary policy under attack from President Luiz Inácio Lula da Silva, central bank chief Roberto Campos Neto did what he used to do as a trader, and took a calculated risk.

In a rare two-hour television appearance, Campos Neto, 53, took a battery of tough questions from six reporters and walked a diplomatic tightrope. He expressed a desire for good relations with President Luiz Inácio Lula da Silva’s economic team while refusing to cave on two of its central demands: to cut interest rates and raise the inflation target. Based on the positive market reaction the following morning, his gamble paid off.

The move risked souring relations with the government further. Campos Neto is the only remaining senior economic official in Brazil who was appointed by former president Jair Bolsonaro. Since Lula took office in January, the bank has been under continual attack from the president and his allies, who see tight monetary policy strangling economic growth.

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Campos Neto has pledged to serve out the rest of his term, which ends in Dec. 2024. His relationship with Lula’s economic team will play a crucial part in achieving economic stability over the coming months.


After Campos Neto’s TV appearance, Lula appeared to tone down his criticism of the bank, in a possible sign of thawing relations.

“The president of the republic shouldn’t be fighting with the president of the central bank,” he said, speaking with CNN Brasil in an interview broadcast Thursday.

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Bold bets

Campos Neto’s four-year career at the central bank has been characterized by bold bets, hearkening back to his time as head of the trading desk at the Brazilian unit of Banco Santander SA.


In early 2021, he oversaw one of the world’s earliest and most aggressive series of interest-rate hikes, even as the economy hadn’t fully rebounded from the pandemic. They paid off: inflation has come down more than six percentage points from its peak last year.

Under Campos Neto, Brazil’s central bank has been among the world’s most hawkish. The policy interest rate now stands at 13.75%, while inflation is 5.8% and falling. A large part of the drop was caused by reductions in sales taxes, however.

This tight monetary policy is forecast to cause a sharp slowdown this year, killing hopes of the boom Lula pledged during his campaign. The economy is forecast to grow 0.76% this year, down from an estimated 3% in 2022. In his TV appearance, Campos Neto defended the bank’s actions by arguing that taming inflation improves the welfare of the poorest Brazilians.

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‘Bastion of stability’

For investors, the California-educated economist has become a symbol of the central bank’s freedom from political control. His grandfather helped found the central bank, and he helped write its autonomy into law in 2021.


Shortly after taking office, Lula began criticizing the bank, calling its policies “an embarrassment” and questioning whether the institution’s newfound autonomy is in the national interest. Such comments are spooking investors who see the bank as Brazil’s main guarantor of sound macroeconomic policy and a bulwark against the type of volatility seen in some other emerging markets.

“The only bastion of stability in Brazil is Campos Neto,” said Hari Hariharan, chairman at investment advisory firm NWI Management in New York.

In Sao Paulo’s financial district, nine asset managers, economists and bankers who spoke to Bloomberg News all said that the central bank chief’s prestige had only increased since his TV appearance.


Reactions among Lula’s camp were more mixed. Finance minister Fernando Haddad welcomed Campos Neto’s praise of the government’s efforts to cut the fiscal deficit. But Gleisi Hoffmann, the president of Lula’s Workers’ Party, took to Twitter to say there’s a disconnect between monetary policy and “Brazilian reality.”

A spokesperson for the central bank declined to comment.

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Political pressure

Taming inflation was one thing, but navigating Brazil’s political currents may turn out to be an even greater challenge.

Many in Lula’s party became suspicious of Campos Neto last year, when he was spotted casting his vote in presidential elections while wearing the national team’s soccer jersey, a practice associated with Bolsonaro supporters. Some questioned whether this was consistent with the bank’s autonomy, alleging he was an ally of the former president.


He responded by citing his move to raise interest rates last year — which wouldn’t have pleased the Bolsonaro campaign — saying the bank’s inflation mandate was always paramount.

The Workers’ Party plans to request Campos Neto’s appearance in congress, where he can be grilled by lawmakers over monetary policy. Some of its members are calling for his resignation.

Lula could attempt to fire his central bank chief, though he would need the backing of senators, and most analysts think he would be unwilling to risk the market turbulence that such a move would likely cause. Congressional leaders have also said they have no plans to draw back the central bank’s autonomy.


A better rapport with the central bank could bring forward the day when Lula gets the interest rate cuts he wants, said Adriana Dupita, a Latin America economist at Bloomberg Economics.

“The less noise around his relationship with the central bank, the less pressure on asset prices and expectations — and the sooner the central bank can cut rates, which is the ultimate goal of Lula’s barbs,” Dupita said.

--With assistance from Daniel Carvalho and Martha Beck.

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