Lula Central Bank Appointee Vows 100% Commitment to CPI Goal

Maria Eloisa Capurro
·3 min read
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(Bloomberg) -- Brazil’s central bank is “100% committed” to bringing inflation to the middle of its target range, director of international affairs Paulo Picchetti said, as he seeks to reassure investors whose long-term expectations remain a half-percentage point above the 3% goal.

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A split-decision in last week’s vote to slow the pace of the monetary authority’s current easing cycle caused Brazilian assets to tumble as traders assessed disagreements between board members aligned with bank chief Roberto Campos Neto and those appointed by President Luiz Inacio Lula da Silva.

The rift generated concerns about the bank’s approach to inflation once Lula wins a majority on the board after he picks two more directors and replaces Campos Neto at the end of the year. Picchetti, one of four Lula appointees on the current board, had surprised investors who said he expressed more concern with growth than inflation during a private event in Washington ahead of the decision.

“Divergences are healthy,” Picchetti said of the vote during a Tuesday phone interview that he limited to questions about the minutes of the bank’s latest rate decision. “We remain 100% committed to bringing inflation down to our 3% goal.”

After cutting the benchmark Selic a quarter-point to 10.5%, the bank said in the minutes that it unanimously sees more restrictive interest rates ahead. The four Lula appointees had united to vote for a seventh-consecutive half-point drop.

Guidance Change Wasn’t Discussed

Policymakers had signaled during their previous rate decision that they would maintain their pace in May. But Campos Neto last month alerted investors to the possibility that they could slow down during a public event in Washington.

The board should “prioritize official mechanisms of communication” that are “the result of conversations among board members” instead of exposing every internal discussion or argument to public scrutiny, he said, adding that that Campos Neto’s remarks had not been fully discussed among board members.

“This communication from the president happened at an event and I honestly don’t know if he had the objective and intention of making this a guidance, but that ended up being the case,” he said.

Picchetti dismissed the idea that the split decision exposed political differences among the board’s members.

“There was a huge exaggeration in the sense of attributing very simplistic views to the decisions of one side and the other,” he said. “The minutes were the opportunity we had to make clear that it was a technical argument.”

Brazil analysts on Monday lifted their 2024 year-end interest rate forecasts. Investors, meanwhile, have in recent weeks ratcheted up wagers that inflation will remain stubbornly above the bank’s goal through 2027, suggesting that they are increasingly skeptical of policymakers’ claims that they are focused on taming price increases.

But Picchetti reinforced the overall message of the minutes, saying that the board as a whole — including the members appointed by Lula — are focused on bringing inflation down to the goal.

“Unless there is evidence saying that this would be ineffective on the horizon we can see, there is no reason not to commit to the center of the goal,” he said. “Clearly we still have a restrictive rate, even with a half-point cut we would still have a restrictive rate.”

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