On 10 February 2021, the Chamber of Deputies approved the law establishing the autonomy of Banco Central, which must be definitively sanctioned by the President of the Republic.
This is an important moment for the Brazilian economy, which has come to an end after 30 years of debate. It finally positions Banco Central as one of the main central banks in the world (remember the US Federal Reserve and the ECB, just to give two examples).
With autonomy achieved (not independence, subtle but fundamental difference), the risk that Banco Central’s monetary policy decisions are subjected to political interference decreases.
The fundamental role of Banco Central remains that of ensuring the stability of prices and the value of the Brazilian currency, the real, and the control and maintenance of the stability and efficiency of the financial system.
To this central objective, the new law adds the establishment of other secondary objectives:
– decrease the “swings” in the level of economic activity
– promote employment
The introduction of these two new sub-objectives aims to ensure that the decisions of Banco Central take into consideration not only strictly monetary, but also economic and social aspects.
It should be noted that the inflation target is established by the CMN (National Monetary Council), made up of two representatives of the Ministry of Economy (Minister and Secretary) and the President of Banco Central and therefore is formulated politically; Banco Central autonomously decides how to reach the established goal.
Under the new law, the President of Banco Central and the eight directors responsible for conducting monetary policy will be appointed by the President of the Republic for a term of four years, renewable for a further four. The appointment will take place at the beginning of the third year of the mandate of the President of the Republic and then will continue until the end of the second year of the mandate of the next President, without the possibility of early resignation.
The autonomy of Banco Central has always been seen as a positive factor by the financial market, in particular by international investors. In theory, with the fixed term of four years, the directors of Banco Central will be better able to maintain the continuity of monetary policy, regardless of the elected President of the Republic. For example, there can no longer be pressure against the increase in the discount rate (SELIC) in times of high inflation and weak economy.
In the period of transition towards autonomy, President Jair Bolsonaro is likely to keep the current President of Banco Central, Roberto Campos Neto, in office until the end of 2023. Given that the new law provides for the possibility of a double mandate (4+4 years), it is possible that Campos Neto will remain in office until the end of 2027.