Galípolo takes over as the current president of the BC from 2025; market expects increase of 0.75 percentage points
The meeting of the (Monetary Policy Committee) on Wednesday night (Dec 11, 2024) marks the last participation of the president of the Central Bank, Roberto Campos Neto, in decisions on Brazilian interest rates. He ends his term on December 31st.
The market expectation is that the board will promote a 0.75 percentage point increase in the basic rate, the Selic. Thus, there would be an intensification of the cycle of increases in the indicator that dictates the behavior of interest rates in the country.
Campos Neto must maintain a technical position and vote in favor of a level that helps control inflation expectations.
For those who remain, this Wednesday’s meeting will serve to maintain confidence in the monetary authority. Directors, especially those appointed by the president (PT), also need to follow a strategic bias.
A divergence can have effects on the market, as occurred during May, when the PT members voted for a greater cut in interest rates and those from (PL) wanted a less significant reduction – and won.
The most prominent vote of the night will be that of Gabriel Galípolo, director of Monetary Policy. Appointed by Lula, he will become president of the authority from 2025.
Selic is the basic interest rate for the Brazilian economy. It directly influences the rates that will be charged on loans and financing. In the market, it impacts application performance. At the moment, .
Campos Neto held 46 Copom meetings during the period. The basic interest rate (Selic) reached the lowest level in history during the Covid-19 pandemic, when it was 2% per year. Countries implemented monetary stimulus measures to increase the level of economic activity during social isolation.
The incentives were added to the governments’ expansionary fiscal policies. As a consequence, global inflation rose. Measured by the IPCA (Broad National Consumer Price Index), it reached 12.13% in the 12 months until April 2022.
Another 2 members participate in the committee meeting for the last time. Both were nominated by Bolsonaro:
- Carolina de Assis Barrosdirector of Institutional Relations;
- Octavio DamasoDirector of Regulation.
Lula will have a majority of nominees at the Copom from 2025 onwards. There will be 7 of his names and 2 from the previous government.
THE CAMPOS NETO ERA
Roberto Campos Neto in 2019. He was nominated by Paulo Guedes, former Minister of Economy of the government (PL). If he were returned to the position by Lula, he could stay until 2028 and become the longest-serving president of the BC, surpassing Henrique Meirelles (8 years).
Responsible for appointing the directors of the monetary authority, Lula is critical of Campos Neto and proposed economist Gabriel Galípolo to lead the body from 2025. Campos Neto also said he was to reappointment and that until December 2024.
The rise in the rising price index led the Central Bank to raise interest rates to control prices and expectations. The body carried out the biggest monetary tightening cycle of the 21st century. the Selic from 2.00% to 13.75% per year – an increase of 11.75 percentage points from 2021 to 2022.
Monetary tightening even before the 2022 elections is Campos Neto’s main argument to defend that monetary policy decisions . Theoretically, Bolsonaro could use the lower rates to make a popular appeal.
President Lula and allies criticized the BC president. They accused him of harming the country with high interest rates during the PT administration.
The Central Bank cut interest rates again in August 2023. The cycle lasted until June 2024, with the indicator remaining at 10.50% per year. The adverse global scenario, uncertainties about public accounts and the heated job market once again raised future expectations for inflation.
The Selic rose again in September. It started with an increase of 0.25 percentage points, which accelerated with each meeting.
INFLATION AND TARGETS
The year 2024 will be the last year that the inflation target will have as a reference the accumulated 12 months until December. The new rolling target establishes that there will be defaults when the rate falls outside the permitted range .
Campos Neto is expected to leave the Central Bank with half of his targets met. Projections for inflation indicate non-compliance by the end of 2024. If the estimates are met, the president should be the one who published the most letters to explain the non-compliance with the inflation objective. There will be 3: , e 2024.
Brazil and the world suffered from a cycle of higher inflation after fiscal and monetary stimuli in the covid-19 pandemic.
The CMN (National Monetary Council) established a continuous target of 3% for inflation that . There is a tolerance of 1.5 percentage points. In other words, the indicator can reach up to 4.5%.
