Dissident Brazil Central Bankers May Be Inhibited by Disclosure

Brazil’s central bank will begin publishing board members’ votes on interest rates, a move that Goldman Sachs Group Inc. says could inhibit board members from going against President Dilma Rousseff’s desire for lower rates.

The decision to disclose how policy makers vote, which takes effect at the board’s next meeting on May 29-30, will improve the policy committee’s decision-making process and fulfills a new federal mandate guaranteeing greater access to information, the bank said in a statement yesterday.

Rousseff, members of her cabinet and union allies of her Workers’ Party have repeatedly called for lower borrowing costs even as economists warn that cutting interest rates too fast threatens to further stoke inflation in Latin America’s biggest economy. The central bank has signaled that it may cut interest rates below its record low 8.75 percent from its current 9 percent, even though economists expect inflation to exceed the 4.5 percent target this year and in 2013.

The central bank’s lack of formal independence could make directors vulnerable to outside pressure though won’t materially change the board’s current monetary stance, Alberto Ramos, a Goldman Sachs economist in New York, wrote in a report yesterday. Unlike policy makers at the Federal Reserve, who serve fixed terms, Brazil’s president appoints board members and can fire them at any time.

“When you disclose the votes without having formal independence you end up exposing the directors to political pressure,” Roberto Padovani, chief economist at Votorantim CTVM Ltda in Sao Paulo, said in a telephone interview. “It is a risk.”

‘Total Autonomy’

Central Bank President Alexandre Tombini has pushed back against critics who say the bank is cutting rates to please Rousseff. On May 9, he sent a statement saying that Rousseff had guaranteed the bank “total autonomy” to set rates as it sees fit after O Estado de S. Paulo newspaper published an editorial that day titled the “Domesticated Central Bank.”

Still, proposals to grant board members fixed terms like policy makers have in Chile and Peru have little support within Rousseff’s party and have been stuck in Congress for years.

Elsewhere in Latin America, only Chile’s central bank, where board members serve 10-year terms, publishes the votes of policy makers. A congressional committee in Peru yesterday approved legislation that would extend policy makers’ mandates to seven years from the current five to prevent the board from being overhauled after each presidential election.

Brazilian policy makers have been split on three occasions since Tombini took control of the monetary authority in January 2011, with dissenting members calling for a rate higher than the majority of policy makers.

The bank also said yesterday that it will begin publishing documents that it studied during policy meetings after a delay of four years.

Brazil has cut the benchmark interest rate 3.5 percentage point since August, more than any other country in the Group of 20 nations. Analysts expect inflation to exceed the remain above the target until at least 2017, according to a central bank survey of about 100 economists published May 14.

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