Lula Taps Ally Gabriel Galipolo as Brazil Central Bank Chief
(Bloomberg) -- Brazil President Luiz Inacio Lula da Silva has chosen Gabriel Galipolo as the next central bank chief, cementing the head of state’s influence over an institution that he has criticized for keeping interest rates high.
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Galipolo, a 42-year-old economist who’s currently the bank’s monetary policy director, will replace Roberto Campos Neto, whose mandate ends in December, Finance Minister Fernando Haddad announced Wednesday. The appointment needs to be approved by the Senate.
The new governor will take over a bank that’s struggling with rising inflation forecasts in Latin America’s largest economy. This month, policymakers unanimously said they won’t hesitate to raise rates if needed, marking a significant change in guidance after pausing a monetary easing cycle in June. That view clashes with Lula’s demands for borrowing cost cuts to help juice economic growth and improve Brazilians’ living standards.
The move will boost Lula’s sway among the bank’s top brass, given he has already named four of the board’s nine members. After today’s announcement, he will also get to tap two other directors and fill Galipolo’s seat.
Analysts surveyed by the central bank see annual inflation remaining above the 3% target through at least 2027. Consumer prices have come under pressure from a combination of higher government spending, a weaker currency, a tight labor market and stronger-than-expected economic activity.
While most analysts see rates held steady at 10.5% through the end of 2024, traders and some economists are betting on hikes as soon as September.
Campos Neto, appointed in 2019 by right-wing former President Jair Bolsonaro, has borne the brunt of Lula’s ire toward monetary policy. Most recently, he labeled the former Banco Santander trading desk head a “political adversary” with “no respect” for Brazil’s middle class.
Lula’s allies hardened their criticism of Campos Neto after he was seen voting with a Brazilian soccer t-shirt that’s often been used by Bolsonaro supporters. This year, he participated in a ceremony in his honor organized by Sao Paulo state Governor Tarcisio de Freitas, seen by many as Bolsonaro’s political heir.
By contrast, Galipolo advised Lula during his last presidential campaign and worked hand-in-hand Haddad as his undersecretary before joining the central bank board in 2023.
Galipolo became one of the president’s go-to people when seeking to understand financial market reactions to statements on the economy. As Lula grew increasingly irritated by high rates, it was Galipolo who participated in key meetings at the presidential palace to argue in favor of the inflation target.
Unlike many of Lula’s confidants, Galipolo neither hails from the Workers’ Party nor has a decades-long relationship with the president. While the head of state first rose to prominence as a labor leader, Galipolo has experience leading a local bank and has refined connections with investors in his current role.
Still, financial markets remained concerned that the monetary authority will become more lenient toward inflation once Galipolo and the new board members assume their roles. In a controversial, split policy vote in May, Galipolo sided with the other Lula-appointed bank directors in backing a larger rate cut even as inflation estimates were quickly rising.
That decision sparked investor backlash and prompted local assets to tank. Board members have voted unanimously since then, stressing there’s consensus in their economic outlook and the need to tame consumer price rises.
“Galipolo doesn’t have the traditional profile of a central banker,” former central bank International Affairs Director Tony Volpon said prior to the announcement. “There’s still big distrust from market players, and his very first moves will be crucial to establish his commitment to the inflation-targeting regime and how closely he will follow those rules.”
Galipolo himself has advocated for a unified front, signaling he wouldn’t intervene in the currency without the full support of the board. In recent public speeches he has also said the bank shouldn’t add volatility to markets, signaling a cautious approach to monetary policy.
Earlier in August, he said that rate hikes are on the table and that board members will do “whatever it takes” to bring inflation back to target, comments that were viewed as more hawkish than his prior stances.
Still, monetary policy is likely to remain politicized after Campos Neto’s exit. Traders will scrutinize Galipolo’s moves, judging his actions on rate decisions by how much they dovetail with Lula’s calls to jump-start the economy.
“Lula believes his tenure will be different than Campos Neto’s, and the party expects more dovish behavior just as investors show extreme distrust,” said Thomas Traumann, a Rio de Janeiro-based communications consultant. “It’s an almost impossible job.”
That distrust stems in large part from troubles seen under Lula’s protege, Dilma Rousseff. During her government over a decade ago, investors perceived the central bank as aiming for an inflation rate that was higher than the official target while, at the same time, the administration boosted public spending and subsidized credit through state-owned banks.
Those efforts to turbo-charge the economy ended up backfiring by leading to soaring inflation and then a deep economic recession.
“So far the bank’s autonomy has held up,” said Traumann, the communications consultant. “Every decision at the start of the next central bank administration will be viewed as being either for or against Lula.”
(Updates with additional context from third paragraph)
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