Bolsonaro Backs Central Bank Head Despite Inflation Concerns

Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

President Jair Bolsonaro is growing uneasy about Brazil’s inflation in the run-up to general elections next year, but his complaints about rising prices don’t mean he plans to interfere with the central bank, according to five people close to him including cabinet members. 

Central bank chief Roberto Campos Neto remains highly regarded within the Bolsonaro administration and also has the backing of key congressional allies, including lower house Speaker Arthur Lira, said the people, who requested anonymity to speak about internal government matters. 

Bolsonaro Backs Central Bank Head Despite Inflation Concerns

On Friday, the Associated Press reported that Bolsonaro has privately regretted signing a law that gave formal autonomy to the central bank and has considered meddling with the institution, according to government officials familiar with the matter. Ciro Nogueira, the president’s chief of staff, denied the report in a series of posts on Twitter in which he called the episode an “imaginary bonfire.”

Inflation Concerns

Bolsonaro for months has complained about rising fuel and cooking gas prices that are eroding his popularity. While inflation is running at an annual rate of almost 9%, fuel costs have soared 44% over the past 12 months, hurting some of the president’s main backers including truckers.

When a social media follower recently bemoaned the price of gasoline over the weekend, the president tried to divert responsibility saying state governors tax fuels too much. 

Behind closed doors, Bolsonaro’s discontent goes somewhat further. He was particularly annoyed by remarks made by Campos Neto last week during a Council of the Americas event in which the central banker linked an increase in inflation expectations to political infighting, according to one of the people. 

Yet those complaints are part of the president’s mercurial personality and show no intention to intervene in the way the central bank works, nor to make changes in the economic team at the moment, the people said.

Campos Neto on Tuesday insisted that market noise has been weighing on expectations, but stopped short of repeating comments about infighting between branches of government.

Brazil’s presidency didn’t reply to comment requests. The central bank declined to comment.

In any case, Campos Neto is under pressure to bring inflation down after an ultra-hawkish monetary policy did little to improve expectations. After four aggressive interest-rate hikes since March and another one planed for September, inflation expectations for 2022 are still above next year’s 3.5% target.

Bolsonaro Backs Central Bank Head Despite Inflation Concerns

Even if the president wanted to fire Campos Neto, he would have to find a way to bypass the bank’s new autonomy law. The legislation, approved by congress earlier this year, establishes that central bank board members can’t be removed before the end of their mandates -- Campos Neto’s term finishes on the last day of 2024.

While Brazil’s Supreme Court is expected to rule on Wednesday on a case that questions the constitutionality of that law, the majority of the justices tend to confirm its legality, according to one person with knowledge of the matter.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.