Source: Marcos Oliveira/Agência Senado
With 66 votes in favor, five against, and no abstentions, the full Senate approved the nomination of economist Gabriel Galípolo as president of the Central Bank (BC). Amid growing debates about Brazil’s economic policy, Galípolo was nominated by President Luiz Inácio Lula da Silva (PT) to take over the presidency of the Central Bank in place of Roberto Campos Neto, whose term will end on December 31st of this year. Despite being critical of the Central Bank’s current interest rate policy and its current president, President Luiz Inácio Lula da Silva has indicated that he does not intend to make any demands of Gabriel Galípolo when he takes over as president of the Bank. Galípolo also stated in an interview that he was guaranteed “freedom in decision-making” and was committed to the interests of the Brazilian population. Lula’s tacit support of the Central Bank’s autonomy raises questions about why Lula is adopting a more open and moderate stance regarding the institution.
Why is the Central Bank at the center of the economic debate?
In Brazil, as in other countries, the Central Bank is responsible for defining the country’s monetary policy. Its mission is to control inflation, primarily using tools such as the basic interest rate (Selic). However, high interest rates have a direct impact on the lives of Brazilians, raising the cost of financing and making credit more expensive, which affects everything from purchasing homes to small business loans. On the other hand, a forced reduction in the basic interest rate can lead to uncertainty and capital flight, which causes the currency to depreciate and prices to rise.
This crucial role of interest rates in shaping daily life makes the Central Bank’s policies a constant subject of debate. Amidst these discussions, a significant turning point came in 2021, when the institution gained operational autonomy through a law sanctioned by then-president Jair Bolsonaro. The law, which passed with a large majority support in the National Congress, marked a milestone in Brazilian monetary policy. By establishing fixed terms for the president and directors of the Central Bank that do not coincide with the term of the President of the Republic, the institution gained greater independence from political influence, particularly in decisions like setting interest rates.
This autonomy allows the Central Bank to make crucial decisions for the country’s economy, such as controlling interest rates, without the need for direct approval from the president. However, this very independence has generated controversy, especially in the context of high inflation and high interest rates, issues that directly affect the population and the government. Galípolo, as the new president, faces the challenge of balancing these pressures while maintaining confidence in the Central Bank, a task made all the more delicate by Lula’s historic stance on the institution’s autonomy.
(Source: Michel Jesus/Câmara dos Deputados)
The approval of the law is not an innovation, even within Brazil. Previously, the Central Bank was the only regulatory body without a fixed term for its leadership, making it more vulnerable to political interference. Furthermore, Brazil has merely followed the path of the world’s major economies. Other major central banks, such as the US Federal Reserve (Fed) and the European Central Bank (ECB), follow the same line of autonomy. The terms of office of the chair of the Federal Reserve are 4 years, not coinciding with the term of the chief executive, and must be approved by the Senate. Similarly, the European Central Bank (ECB) has non-renewable terms of 8 years, which Parliament must approve.
What has Lula said about it?
As mentioned, the Central Bank gained operational autonomy in 2021, during Jair Bolsonaro’s administration, and Lula resumed the presidency in 2023. Since then, the independence has been a source of tension between the Central Bank and the Executive. Lula has been critical of the Central Bank’s independence and its management of interest rates. In Lula’s view, the rates were too high, limiting the government’s ability to invest in critical projects, which, he argued, harmed the Brazilian people. At one point, Lula even suggested that Roberto Campos Neto, the current president of the Central Bank, was pursuing a political agenda aimed at damaging the country.
Source: Marcelo Camargo/Agência Brasil
Beyond criticizing interest rate policies, Lula went further by directly questioning why he couldn’t appoint a new president for the bank upon taking office. “How can a president who was not elected by the current government continue to head the Central Bank?” he asked, implying that the selection of a new Central Bank president should fall under the authority of the elected government. This criticism targets the heart of the Central Bank Autonomy Law, which was designed specifically to prevent political interference in monetary decision-making. At another time, Lula also pointed out: “The president never interferes with Copom’s decisions… Meirelles had autonomy with me, but I had the power to remove him, just as FHC removed others. Then they decided it was important for the Central Bank to be independent and autonomous. But autonomous for whom?”
It’s also worth mentioning that Lula’s criticism has resonated with the public. A Quaest/Genial poll conducted in July 2024 revealed that 66% of Brazilians agree with the president’s critiques of the Central Bank’s interest rate policies. Only 23% disagreed, while 11% remained neutral or did not respond. Lula is right about one thing: the rates are indeed high. Brazil currently holds the second-highest real interest rate in the world at 7.33%, according to economist Jason Vieira from MoneYou. However, experts note that the rates are justified, considering the persistent inflationary pressures, fiscal challenges, and a volatile global economy. For the Central Bank, such measures are crucial for controlling inflation and maintaining economic stability in the context of global uncertainty and domestic fiscal concerns.
Who is the new president and why does it matter?
Galípolo is an economist with vast experience in both the public and private sectors, who has risen to prominence as the executive secretary of the Ministry of Finance. His recent vote to raise interest rates as part of the Monetary Policy Committee (Copom) highlights his commitment to addressing inflation concerns, a move that the Lula administration defended in the face of potential criticism. Galípolo has also signaled his support for a Constitutional Amendment Bill that would further guarantee the Central Bank’s financial autonomy, though this proposal has encountered some delays due to ongoing disagreements between Lula and current Central Bank president Roberto Campos Neto. Galípolo’s technical expertise and experience, combined with this new political strategy, mark his appointment as a pivotal moment in Lula’s government.
Source: Edilson Rodrigues/Agência Senado
As stipulated by the Central Bank’s Autonomy Law, Galípolo’s nomination had to be approved by the Senate. With 13 different parties represented in the Senate, including the Liberal Party (PL) -of former president Bolsonaro and persistent opposition to Lula – Lula had to secure support beyond his Workers’ Party (PT), which holds only 11% of the seats. To win approval, Lula needed to build alliances with centrist and right-leaning parties. Galípolo’s moderate and technocratic profile proved acceptable to a broad range of political ideologies, helping him win support even from figures aligned with the opposition.
This political dynamic reflects Brazil’s system of “coalition presidentialism”, as described by political scientist Sérgio Abranches. Under this system, the executive branch must navigate a highly fragmented Congress, building coalitions across the political spectrum to pass legislation and implement policy. This system often prevents radical shifts in policy, instead encouraging negotiation and compromise. Therefore, Brazil’s party diversity, often criticized for splintering political power, plays a crucial role in maintaining checks and balances. It ensures that no single branch of government can dominate, forcing the executive to collaborate with different factions in Congress.
In this way, Galípolo’s appointment, achieved through consensus-building efforts involving centrist and opposition parties, was approved with 66 votes in favor, five against, and no abstentions. This illustrates how consensus-building can act as a stabilizing force. As the new president of the Central Bank, Galípolo will play a key role in shaping Brazil’s economic future by balancing monetary policy decisions. While Congress is expected to continue to act as a balancer of forces in Brazil, political equilibrium in Brazil remains crucial to safeguarding both democratic institutions and economic stability.
Questions for reflection and further debate
- How should independent institutions like the Central Bank balance their autonomy with the democratic responsibility to serve the public interest? Should they strictly follow public sentiment, or is it necessary to maintain independence to make decisions that may be unpopular but essential for long-term stability?
- If institutions like the Central Bank should serve the people directly, how can we prevent the risk of populism influencing long-term economic stability? What mechanisms could safeguard these institutions from short-term political pressures?
- In a fragmented Congress where multiple parties share power, how does the need for constant negotiation and coalition-building contribute to the balance of democracy? Can this system enhance representation, or does it risk slowing down crucial reforms and legislative progress?
Suggested Readings
One of the most complete and honest analyses I’ve seen about Brazil’s central bank