Understand the exchange of barbs between Lula and the Central Bank

The relationship between President Luiz Inácio Lula da Silva (PT) and BC (Central Bank) has been marked by increasing tension in recent weeks.

Lula and part of his team have been criticizing the actions of the monetary authority, in particular the maintenance of the interest rate (Selic) at 13.75% since the beginning of his mandate.

The president went so far as to say that the current level of the Selic is a “shame”, he called the BC’s autonomy “nonsense” and gave signs that he may review the institution’s independence after the end of the mandate of Roberto Campos Neto, the bank’s current director. , in December 2024.

On the other hand, the Central Bank has demonstrated that it should keep interest rates at the current level for a longer period of time. At the last Copom (Monetary Policy Council) meeting, the first in the Lula administration, the institution issued warnings about fiscal uncertainties and the worsening of inflation expectations, which are moving away from the target in longer terms.

In addition, Roberto Campos Neto, one day after Lula’s statements, reinforced his defense of the body’s independence and pledged to stay in office until the end of his term. “I think the market would be much more volatile if the Central Bank did not have autonomy in the law,” he said.

Understand what Central Bank autonomy is, why the measure is the target of government criticism and how the exchange of barbs between Lula and the monetary authority affects the country’s economy.

What is Central Bank autonomy?

The rule disassociated the BC from the Ministry of Economy and made it an autarchy of a special nature. The main change was the creation of fixed terms of four years, with the possibility of reappointment, which distances the body from political influence.

When was the BC autonomy law passed and why?

With the aim of shielding the institution from government interference and creating fixed mandates, the bill was approved in 2021 and then sanctioned by then-president Jair Bolsonaro (PL).

Can board members be fired?

They can leave office when they perform insufficiently to achieve the BC’s objectives, with a decision by the President of the Republic and the approval of the Senate in a secret ballot being necessary.

They may also be exonerated at their request or if they contract a disease that makes it impossible for them to perform their duties.

In addition, they may be dismissed if convicted, by means of a final and unappealable decision or issued by a collegiate body, for the practice of administrative impropriety or a crime whose penalty temporarily prohibits access to public office.

How do you get discharged for poor performance?

It is incumbent upon the CMN (National Monetary Council) to submit a proposal for dismissal to the President of the Republic. This council is made up of the Ministers of Finance and Planning and Budget, in addition to having the BC president himself on its composition. Senate approval is required.

In the event of removal of the president of the BC, the position will be exercised on an interim basis by the director with the longest time in office until the appointment of a new president.

How are BC directors appointed?

The BC’s collegiate board has nine members (president and eight directors). All are indicated and appointed by the President of the Republic, after approval by the Senate.

How was the first fixed mandate defined?

The president and two directors will have terms until December 31, 2024, and the others will end their periods in a staggered manner. Two of them have already ended their term on December 31, 2021. The next two end on February 28, 2023; another two, on December 31, 2023.

Who are the ‘Copom nine’ and how long do they have a mandate?

Paulo Souza

Inspection Director
February 28, 2023

Bruno Serra Fernandes

Monetary Policy Director
February 28, 2023

Mauricio Moura

Relationship, Citizenship and Conduct Supervision Director
December 31, 2023

Fernanda Guardado

Director of International Affairs and Corporate Risk Management
December 31, 2023

Roberto Campos Neto

President
December 31, 2024

Carolina de Assis Barros

Director of Administration
December 31, 2024

Otavio Ribeiro Damaso

Director of Regulation
December 31, 2024

Renato Dias de Brito Gomes

Financial System Organization and Resolution Director
December 31, 2025

Diogo Abry Guillen

Director of Economic Policy
December 31, 2025

All can be reappointed once, by decision of the President of the Republic.

What is the objective of the BC established in the law?

The BC’s fundamental objective is to ensure price stability, in addition to, on an ancillary basis, ensuring the stability and efficiency of the financial system, smoothing fluctuations in the level of economic activity and promoting full employment.