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Rousseff Said to Oppose Brazil Central Bank Independence

Oct. 28 (Bloomberg) -- Brazil’s President Dilma Rousseff opposes efforts by the Senate chief to grant fixed terms to central bank directors, a move her party sees as limiting her authority, a legislator and a government official said.

Senate President Renan Calheiros said Oct. 25 he would hold a vote this year on a bill that would block Rousseff from firing central bank board members without congressional approval. His comment came after the Organization for Economic Cooperation and Development in a report urged the country to approve such legislation to avoid undermining its credibility.

The legislator, who asked not to be named to avoid a public debate, said Calheiros’ proposal is a bargaining chip to obtain benefits for his PMDB party, a partner in the ruling coalition. The government official, who is not authorized to speak publicly about the issue, said the proposal is a political tactic to push for concessions in other areas.

“I’m certain we won’t support this measure,” Devanir Ribeiro, legislator and co-founder of the ruling Workers’ Party, said by telephone. “The government can’t give up authority over strategic issues like monetary policy and foreign exchange policies.”

The presidential press office declined to comment when asked about Rousseff’s opinion of the bill.

Formal Independence

Rousseff’s Workers’ Party historically has opposed formal independence for the central bank, which it says already enjoys the operational autonomy needed to meet the inflation target, Ribeiro said.

The monetary authority led by Alexandre Tombini cut its benchmark interest rate in October last year to a record 7.25 percent as Rousseff vowed to lower borrowing costs to “civilized” levels.

Policy makers in April reversed course, starting the world’s biggest tightening cycle in a bid to slow above-target inflation. This month they raised the benchmark Selic rate to 9.5 percent after inflation twice this year breached the 6.5 percent ceiling of the inflation target range.

Rousseff said three weeks before the April rate increase that she didn’t agree with anti-inflation policies that sacrifice growth, prompting interest rate futures to fall. Hours later her speech, following a request by Rousseff to clarify her statement, Tombini said it is the central bank that comments on interest rate policy and the government that speaks about inflation.

Operational Autonomy

Rousseff and Tombini have repeatedly said the central bank has operational autonomy to make make its decisions.

The OECD in the report published last week said statements on interest rates from officials outside the central bank risk confusing market participants and hurting policy makers’ independence.

“Both could result in inflationary expectations becoming unanchored from the inflation target,” according to the report.

The Senate bill would grant the chief a four or six-year fixed term that wouldn’t coincide with the president’s time in office. Directors could only be removed with Senate approval, Calheiros said during a Senate speech Oct. 25.

“At a moment when a central bank can be pressured because of a lack of autonomy, it risks losing respect and credibility by actors in the economy,” said Calheiros.

The PMDB may get the bill approved in Congress if the government isn’t careful, said the legislator who requested anonymity.

“It would be a positive surprise if it were approved,” Juan Jensen, a partner at consulting company Tendencias Consultoria Integrada, said by phone from Sao Paulo about the bill. “The degree of the central bank’s autonomy today is questionable.”

To contact the reporter on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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