June 11 (Bloomberg) -- Strengthening the independence of Brazil’s central bank will help reduce uncertainties in Latin America’s biggest economy, said Henrique Meirelles, president of the monetary authority.
Meirelles, at a conference in Sao Paulo sponsored by Bloomberg News Portuguese language service, said it was up to congress and the president to decide whether to grant the bank formal independence.
“For risk premiums to continue falling in Brazil’s economy, it’s important that there is growing confidence over the institutionalization of the stability of the central bank as an independent regulating agency,” Meirelles, 64, said.
President Luiz Inacio Lula da Silva named Meirelles his monetary chief after winning the 2002 elections. Under his watch, inflation has slowed from 12.53 percent to 5.22 percent. At the same time, he slashed interest rates to a record low 8.75 percent from 25 percent.
At today’s event, former central bank president Carlos Langoni said it was important for the monetary authority to be granted formal independence.
“The formal independence of the central bank is a natural outgrowth of our democratic society,” said Langoni, who now is director of the Global Economic Center at the Getulio Vargas Foundation in Rio de Janeiro. “An independent central bank arose as a way to reconcile the interests of different groups of power and as a way to guarantee the currency’s value.”
Dilma Rousseff, who is running for president on Lula’s Workers’ Party ticket, said last month in New York that it is “fundamental” to preserve the central bank’s operational autonomy. She said she would continue a tradition started under Lula of inviting the monetary chief to join her cabinet if she’s elected in the October vote.
The central bank’s eight-member board voted unanimously this week to increase the Selic rate by 75 basis points to 10.25 percent from 9.50 percent. Policy makers said in a one-sentence statement that the rate increase would help “ensure the convergence of inflation to the target trajectory.”
Central bankers ended nine months of record low interest rates in April as surging domestic demand helped fuel a 9 percent expansion in the first quarter, the fastest in 15 years. Faster growth has stoked consumer price increases that exceeded the government’s 4.5 percent target in every month this year.
Meirelles, who stepped down as global banking chief at FleetBoston Financial Corp. to run for Congress in 2002, said April 1 he would stay at the central bank until Lula’s term ends in December, giving up a bid to run for a public office in the October elections.
Economists predict policy makers will continue to increase the benchmark rate up to 12 percent by January 2010, according to the median estimate in a central bank survey published this week.
Annual inflation, as measured by the benchmark IPCA index, slowed to 5.22 percent in May from 5.26 percent in April, the first deceleration in seven months.
To contact the editor responsible for this story: Joshua Goodman at email@example.com