BRASILIA – Brazilian President Luiz Inacio Lula da Silva, a staunch opponent of high interest rates – is reportedly getting ready to nominate Gabriel Galipolo for the central bank’s governor.

Galipolo would be among the four nominations for the board of Banco Central do Brasil and are expected in the coming weeks.

If approved by the Senate, Lula’s choices will take office in 2025, giving the leftist president seven picks on the central bank’s nine-member interest rate-setting committee, known as Copom.

Galipolo, the central bank’s monetary policy director, has long been seen as a strong contender to replace governor Roberto Campos Neto, whose term ends in December.

RATE HIKES VS RATE

The upcoming change in command at Brazil’s central is very significant given Lula’s strong opposition to the higher interest rates. He has been very critical of Roberto Campos Neto, the current central bank chief, who was appointed by former president Jair Bolsonaro.

Bolsonaro stands for far-right political views, thus advocating deregulated economy with very limited government. It is complete contrast to Lula who advocates social justice and envisages a government that intervenes in market to protect the low-income groups from exploitation.

The difference of opinion shows the serious differences between the political leaders and the central banks around the world – especially in developing countries which need and want more economic growth – over how and when to slash the interest rates which were raised to deal with the historic high inflation.

NO EXPLANATION

Earlier in March, Lula said there was no explanation for keeping Brazilian interest rates at 11.25% [the level back then when he made the statement] apart from the “stubbornness” of Neto.

Brazil’s central bank, at one point, raised the interest rates to 13.75%, but the borrowing costs are now down to 10.50%.

Last month, the central bank warned that it won’t hesitate to raise interest rates if necessary to bring inflation down to its target.

“There is no economic explanation, no inflationary explanation. There is nothing, apart from the stubbornness of the central bank’s president over holding these interest rates,” Lula had said.

He added that Neto was contributing to a delay of Brazil’s economic growth.

It is worth noting higher borrowing costs negatively affects economic growth, as businesses become reluctant to invest for expanding the current setups or establish new ones.

Hence, the Federal Reserve is being blamed for possible economic recession by keeping the US interest rates higher.

SOMEONE IS PROFITING FROM HIGH INTEREST RATES

Later in June, Lula said the media frequently mentions Brazil’s fiscal deficit, but no one talks about high interest rates “in a country with 4 per cent inflation”.

“On the contrary, they celebrate with the central bank chief in Sao Paulo. Again, those attending the celebration must be profiting from the [Brazil] interest rate,” he said.