Brazil’s New Central Bank Head Clears Senate Confirmation Easily

(Bloomberg) -- Brazil’s Senate gave its final approval to Gabriel Galipolo’s nomination as central bank governor late on Tuesday, clearing the change in leadership at an institution that’s struggling to tame inflation expectations.

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The Senate floor voted 66 to 5 in favor of Galipolo, who is currently the central bank’s monetary policy director. Galipolo had secured a committee backing earlier after telling lawmakers that President Luiz Inacio Lula da Silva said he’ll have the freedom to make decisions without political interference.

“Every time the president met with me or called me, it was to say ‘you will be completely at ease with me. I will never ask you anything beforehand, nor will I ever interfere. You will have complete freedom to make decisions in accordance with your judgment. I will always show respect,’” Galipolo said.

Galipolo will replace Roberto Campos Neto and take the reins of a bank that halted an easing campaign in June and started a cycle of rate hikes in September. That change of course makes Brazil an outlier as policymakers in Latin America and the US reduce their own borrowing costs. He stands to face price challenges including strong growth, higher public spending and a drought— all factors that are keeping inflation forecasts above the 3% target.

The central bank has had autonomy since 2021, meaning Lula can object to policymakers’ decisions but cannot force the board to follow his guidance. At several points during the committee hearing Galipolo was asked about how he would react if the leftist president were to demand lower rates, with a senator even asking him about his “courage.”

Above-target inflation estimates are concerning for the central bank, and there’s a need for more caution in monetary policy, Galipolo told lawmakers. Brazil’s economic growth forecasts have been systematically revised higher due in part to the government’s spending, he said.

The “progressive and distributive” nature of Lula’s fiscal policies is boosting consumption, he said.

A weak currency and strong labor market are other factors driving price forecasts above the central bank’s goal, Galipolo said during his remarks, when he quoted famous economists such as John Maynard Keynes, as well as former UK Prime Minister Winston Churchill and Argentine writer Jorge Luis Borges.

“It’s not the central bank’s job to take risks,” Galipolo said. “The job is to be more conservative and to guarantee that the interest rate is at the adequate level to hit the inflation target.”

Galipolo said the central bank shouldn’t have an “elastic” notion of its 3% goal, as its tolerance range isn’t meant to reduce monetary policy efforts.

“He maintained a tough stance,” said Milena Landgraf, a partner at Jubarte Capital, adding that Galipolo also reinforced the central bank’s independence.

Earlier this year, many investors viewed Galipolo as a policymaker who would deliver the rate cuts that Lula has demanded. A 42-year-old economist, he advised the head of state during his last presidential campaign.

In recent months, however, Galipolo has sought to build credibility among investors by burnishing a reputation as an inflation hawk who is not afraid to raise borrowing costs and who is willing to do “whatever it takes” to tame price growth.

Since assuming his current post in 2023, Galipolo has also stood out as a skillful negotiator and for his more conversational style during speeches.

In events and meetings with lawmakers before Tuesday’s hearing, Galipolo repeated that the central bank needs to behave like an annoying party host who asks guests to lower the music — similar to the expression of “removing the punch bowl” of monetary stimulus that’s often used by global policymakers in moments of rising inflation risk.

He’s also compared his job with that of the defender on a soccer team who needs to prevent the ball from getting past him.

Brazil’s central bank kicked off a tightening cycle last month, lifting the benchmark Selic by a quarter-point to 10.75%. Traders are betting that borrowing costs will rise past 12% early next year.

--With assistance from Franco Dantas, Beatriz Amat and Daniel Carvalho.

(Re-casts the story to lead with approval by Senate floor)

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