Brazil’s Luiz Inácio Lula da Silva is just the latest left-winger to query the independence of the central bank
seven weeks in office, Luiz Inácio Lula da Silva, Brazil’s leftist president, has picked a fight with the central bank. Lula, as he is known, has called the bank’s interest rate of 13.75%, a six-year high, “shameful”. He has also called the independence of the central bank “nonsense”, and suggested that the Senate “keep an eye” on its governor, Roberto Campos Neto, whose term ends in 2024. The president may even go further and press for the inflation target—currently 3.
At first glance most Latin American central banks have been exemplars at combatting inflation. Interest rates rose fast and high as inflation rose. Brazil moved early and aggressively, raising rates fully a year before the Federal Reserve. It increased rates from 2% in March 2021 to 13.75% today. That is one of the tightest policy stances anywhere in the world . This helped bring down inflation from over 12% to 5.8%, the largest drop among emerging markets.
The other problem is that some leaders, such as Lula, appear to think that central bank independence is now a problem. They fear that high rates dampen growth and hurt borrowers. Central bank independence also makes it harder for these politicians to stimulate the economy, because the banks counteract fiscal expansion.
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