Brazil's Lula renews criticism of central bank for 'unreal' interest rates

Brazil's President Luiz Inacio Lula da Silva stands during honours ceremony for the visit of Japan's Prime Minister Fumio Kishida at the Planalto Palace in Brasilia, Brazil, May 3, 2024. REUTERS/Adriano Machado/File Photo

SAO PAULO (Reuters) - Brazilian President Luiz Inacio Lula da Silva on Friday renewed his criticism of the country's central bank, dubbing current borrowing costs "unreal," and saying the recent weakness of the local currency was related to "speculation."

WHY IT'S IMPORTANT

Lula, a leftist, has constantly bashed central bank chief Roberto Campos Neto, a nominee of far-right former President Jair Bolsonaro, for what he sees as excessively high interest rates. Campos Neto's term ends at the end of this year and Lula will appoint his successor.

The central bank last week held its benchmark Selic interest rate at 10.50%, interrupting an easing cycle started in August.

KEY QUOTES

"I understand the interest rate is a tool to control inflation, but inflation is controlled and within the target range," Lula told a local radio station.

"He is the central bank head of the previous government, and ideologically he thinks like the previous government," Lula said about Campos Neto. "Things will get better when I get to appoint a new head and we build a new philosophy."

"Why is the dollar rising (against the Brazilian real)? Because there is speculation with derivatives ... The central bank has an obligation to investigate this."

MARKET REACTION

Brazil's real dropped more than 1% on Friday, weakening past 5.58 per U.S. dollar.

William Jackson, chief emerging markets economist at Capital Economics, said Lula's "war of words" with the central bank has fueled concerns about politicization of monetary policy and contributed to the real's weakness this week.

(Reporting by Gabriel Araujo; Editing by Sharon Singleton and Paul Simao)