Allies of Brazilian President Luiz Inácio Lula da Silva have stepped up criticism of the financial market ahead of the Central Bank’s next monetary policy meeting, accusing investors and analysts of using pressure over fiscal policy to influence the new government’s decisions. The Copom committee is due to set the Selic benchmark rate on Wednesday, with the rate currently at 13.75% a year.
Former chief of staff Rui Costa, a senator-elect from Bahia who took part in Lula’s campaign, began the public criticism on Friday. In an interview with Metrópoles, he said financial-sector participants who shape prices and expectations should also consider the country’s interests, and argued that some market activity reflected speculation and attempts to secure unusually large gains.
On Saturday, Presidential Chief of Staff Guilherme Boulos said in an interview with Folha that the debate over fiscal adjustment in the incoming government amounted to “market blackmail.” He argued that spending cuts should target privileges rather than lower-income people, citing tax breaks, high public-sector salaries and mandatory congressional budget amendments as areas for discussion.
The criticism continued on Sunday. Lula posted a video on X saying he would not cut social programs and describing opposition claims about such cuts as fake news. Former Workers’ Party leader Gleisi Hoffmann also cited an article by economist André Lara Resende, published on September 25, as a response to what she called a “terrorist offensive” over Brazil’s fiscal policy. Hoffmann accused financial-market analysts of confusing rentiers’ interests with economic rationality.
Finance Minister Dario Durigan rejected speculation that the government was considering setting interest rates. Workers’ Party president Edinho Silva said economic speculation was unhelpful and said Durigan was the only person authorized to speak for Lula’s government on economic policy.
The political dispute follows a sharp decline in financial assets after Lula’s reelection. Brazil’s stock market fell 17.5% over the week, its biggest weekly drop since the period ending March 20, 2020, when the coronavirus pandemic began. The index had reached a record 200,000 points earlier in the month.
Most economists expect the Copom to halt its rate-cutting cycle, which began in March. They point to currency depreciation, fiscal uncertainty and pressure in futures markets as factors making inflation control more difficult and warranting caution from the central bank. Government figures, by contrast, argue that high interest rates hinder economic growth and contribute to rising defaults and business difficulties.
Lula has also criticized the Central Bank’s independence, saying it gives the financial sector greater influence over economic policy. Under the 2021 law, the president appoints the central bank’s board members, but their terms do not coincide with the president’s, a design intended to shield decisions on the Selic rate from political interference.
Sources: Folha Mercado.