Brazil’s Lula chooses political ally Galípolo as new central bank chief

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Brazilian President Luiz Inácio Lula da Silva has chosen a political ally to head the country’s central bank, after sharply criticising the institution’s incumbent governor over high interest rates.

Gabriel Galípolo, who is director of monetary policy at the Banco Central do Brasil, was named on Wednesday to lead one of the most important central banks in emerging markets.

If confirmed by senators, Galípolo will at the start of next year replace Roberto Campos Neto, who was credited with placing the BCB at the vanguard of global efforts to contain surging inflation in the wake of the Covid-19 pandemic.

After cutting its Selic basic interest rate to an all-time low of 2 per cent during the pandemic, the BCB then aggressively increased it into the double digits. Despite a series of cuts in 2023 and 2024, the benchmark remains at 10.5 per cent.

Lula has railed against elevated borrowing costs as a drag on activity in Latin America’s largest economy and accused Campos Neto, who was appointed by rightwing former president Jair Bolsonaro, of political bias. Lula has on occasion called into question the autonomy of the central bank.

Investors are eagerly awaiting signs of whether Galípolo will pursue a more dovish approach or stick with the hawkish stance.

The 42 year-old was deputy finance minister before being nominated by Lula to the BCB’s monetary policy committee last year. A former chief executive of investment bank Banco Fator, Galípolo acted as interlocutor with the financial sector on behalf of Lula during his 2022 election campaign.

“What he values most is showing independence, autonomy and that he is not being influenced politically. But this will still be tested in practice by the market,” said Solange Srour, head of macroeconomics for Brazil at UBS Global Wealth Management.

She added that Galípolo’s main challenge would be the navigating around the country’s shaky fiscal position, which she called Brazil’s “Achilles heel”.

Arminio Fraga, founder of Gávea Investimentos in Rio de Janeiro and a former head of the BCB, said the impact of fiscal policy on inflation expectations was an issue for the incoming governor.

“That’s by far the major challenge they’ll have to deal with. To do it under additional political pressure won’t help at all.”

Additional reporting by Beatriz Langella