Why President Lula Is Clashing With Brazil’s Central Bank

When Luiz Inacio Lula da Silva was Brazil’s leader from 2003 to 2011, he didn’t have to contend with an independent central bank. Reelected president in October, he has resisted the new reality created by a 2021 law enshrining the bank’s power to set monetary policy autonomously. He has called the law “nonsense” and publicly criticized the bank’s inflation goals and interest rates, creating tension with its chief, Roberto Campos Neto. The bank has set its benchmark interest rate at a six-year high and signaled readiness to hold it there to combat inflation, even as household debt neared a record high, banks pulled back on lending and corporate bankruptcies rose. The left-wing Lula, for his part, wants borrowing costs lowered to boost economic growth and deliver on his campaign promises of “steak and beer” for all. More recently, there have been signs that both sides may be willing to at least lower the temperature of the debate.

Brazil’s central bank was one of the first to embark on an aggressive cycle of raising interest rates, moving in 2021 to take its benchmark Selic rate from historic lows of 2% to 13.75% by September 2022. In turn, inflation fell to 4.18% from a peak of more than 12%, the biggest drop among emerging economies. But with an inflation target of around 3%, the bank’s policymakers aren’t finished combating rising prices, especially since much of slowdown in price gains came from cuts to taxes on gasoline and sales taxes approved under the previous president, Jair Bolsonaro. Transportation and food prices began picking up again in 2023. Core measures stripping out some of the most volatile items like energy and food were still running hot, and most analysts expected consumer price increases to pick up again by December.