BC Ignores Duty and Allows Dollar Surge, Inflating the Economy

247 - The recent rise in the dollar, driven by financial market speculations about a supposed fiscal risk, has caused concern in the federal government. Roberto Campos Neto, president of the Central Bank, has frequently voiced concerns about the public deficit, despite the Lula government’s repeated assurances that the zero deficit target will be pursued. While Campos Neto advocates severe austerity measures, the government seeks cuts in areas of excessive spending, a less draconian strategy.

The Central Bank's website clarifies that the institution has the duty to "execute exchange rate policy, being able to act directly in the market, buying and selling foreign currency occasionally and limitedly, with the objective of containing disorderly exchange rate movements." However, the rise in the dollar has not been matched by effective actions from the BC. The dollar's appreciation can result in rising inflation and pressure to further increase interest rates, which benefits the banking sector.

With only a few months left in his term, Campos Neto maintains a stance that many criticize as detrimental to the Brazilian economy. President Lula, on the other hand, has already signaled the search for a replacement more aligned with the government's economic policies, prioritizing a balance between fiscal stability and economic growth. The expectation is that new leadership at the Central Bank can reorient exchange rate policy and mitigate the negative impacts of current market speculation.