Bloomberg — Monetary policy, former Federal Reserve chairman Ben Bernanke often said, is “98% talk and 2% action.” But inside Brazil’s central bank, some worry that its newest director might talk too much.
Gabriel Galipolo and Ailton Aquino, President Luiz Inacio Lula da Silva’s picks to fill vacant roles on the bank’s board, will this week participate in their first interest rate decision meeting, with policymakers expected to begin cutting the benchmark Selic from its six-year high of 13.75%.
Galipolo’s approach to the job has attracted particular attention, given his status as a potential successor to bank chief Roberto Campos Neto and a close ally of the leftist president that has spent the last seven months blasting the bank for maintaining high interest rates.
And less than a month into his new role, the media-savvy former deputy finance minister has generated debate among his new colleagues over how freely and independently directors should communicate with markets and the public, according to two people familiar with the situation who requested anonymity to speak about internal matters.
Under Campos Neto, bank directors have tended to project a united front in public interviews even when they have disagreed, hewing closely to the language of its official correspondence. Some board members, worried that Galipolo may openly dissent from bank decisions if they take a less aggressive approach to easing than he prefers, have now pushed for a policy that would require directors to submit interview requests to Campos Neto’s office for approval, one of the people said.
The central bank declined an interview request for Galipolo, saying he wouldn’t be available until after this week’s rate meeting concluded. A spokesperson denied that any major changes to its media or interview policies are under consideration.
“It is up to each member of the Collegiate Board of Directors to decide on the opportunity, convenience and timeliness of the interviews, without any prior authorization or approval from the president,” the spokesperson said.
But the concerns reflect the delicate nature of a looming easing cycle that will unfold amid intense political scrutiny, and the importance of official communications that provide clear guidance on how far and how fast policymakers intend to move.
Disparate signals and difficult-to-decipher statements that make it hard to predict next steps can result in market volatility that throws rate curves and inflation expectations off kilter, potentially shaping the future policy course.
Avoiding that scenario may be even more vital in countries like Brazil, where the monetary authority has long operated independently but is still establishing the credibility of the formal autonomy it won just two years ago, and that Lula has at times questioned.
“The challenge for any central bank that operates with autonomy and an inflation goal is to explain their flight plan with the most transparency possible, but while causing the least volatility for markets,” said Felipe Sichel, a senior economist at Porto Asset in Sao Paulo. “That’s a tricky equilibrium, even for central banks with a long history of autonomy, like the European Central Bank.”
A Shift in Strategy
The bank’s newfound autonomy and Lula’s criticism of high interest rates have already led to initial shifts in its communication strategy. Directors have begun to grant more interviews, and last month, the bank started hosting live discussions on YouTube in an effort to explain the technical aspects of its statements in layman’s terms.
“We are very much on the media and public agenda, and every small thing is amplified,” Campos Neto said during a recent news conference.
That has pushed Brazil in the direction of some regional peers and other more established monetary authorities.
It’s common for individual Federal Reserve governors to conduct interviews and appear on TV, and European Central Bank directors often openly dissent from its decisions. Members of the board of Mexico’s central bank frequently share differing views on how it should tame inflation, and at least one of its governors – Jonathan Heath – is active on social media.
Although Heath has faced criticism from analysts who see him as overly explicit about his future votes, he has pushed the bank to adopt more transparent communications policies that are easier for the general public to understand.
Like Heath, Galipolo is an uncommonly public figure for a central banker: As Lula’s deputy finance minister, he played a frontline role in shaping and selling the government’s economic agenda, and after his May appointment to his new role, he embarked on a multiday media tour.
Brazil’s monetary authority is still conscious of the risks a looser communications approach can pose. In 2015, then-director Tony Volpon said in a speech that he would continue to favor rate increases until inflation was under control, comments that generated backlash from lawmakers who interpreted them as an indication of his vote in an upcoming meeting. Volpon sat out the decision as a result.
Former bank chief Ilan Goldfajn adopted a stricter policy upon taking over in 2016. He personally reviewed press inquiries, according to two people familiar with his tenure, out of the belief that a centralized, common voice was important to the bank’s credibility.
Still, Brazil is likely headed down a new path. Campos Neto said recently that board members have debated holding news conferences after rate decisions are made, a practice common among advanced central banks. The bank spokesperson said directors are still studying the possibility but have yet to make a decision.
A statement the bank released in late July, meanwhile, said that its communications strategy is aligned with and would continue to evolve alongside those of institutions with longer histories of autonomy.
“It’s about noise versus signals,” Diogo Guillen, the central bank’s director of economic policy, said during a recent YouTube event about how communications impact monetary policy. “We can have several layers of communication, without losing our technical rigor.”
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