Economy

Brazil's Central Bank autonomy project is approved and goes to the president's final approval

Institution autonomy is an important step forward in protecting monetary policy from political party interference

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  • The main change concerns to the terms of the Central Bank’s president and directors, which will come into effect at a different period from the term of the president of the republic;
  • The measure guarantees greater autonomy in relation to the Executive Branch, increasing confidence in the institution’s authority;
  • The proposal also separates the Central Bank from the Ministry of Economy and considers the institution as a special authority with no ties, tutelage or hierarchical subordination.

Brazil’s lower house of Congress approved the Central Bank’s autonomy project. The main change concerns the terms of the Central Bank’s president and directors, which will come into effect at a different period from that of the country’s Presidency.

How? The institution’s board of eight directors, as well as the head of the bank, will have a four-year term that can be renewed once. Also, the Central Bank’s leadership mandate will expire halfway through the presidential term. The approval of the president’s nomination will continue to depend on Senate scrutiny. But, without coinciding mandates, the Central Bank president’s appointment is expected to be less politicized and more based on expertise.

The measure guarantees greater autonomy to the Central Bank concerning the executive power influence over the institution, protecting the monetary authority’s policies from political interferences. The project now has to be signed by President Jair Bolsonaro.

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The project’s rapporteur, deputy Silvio Costa Filho, tells Agência Brasil that the project will enable a new monetary governance standard. “It is a significant sign for the international market, making it possible for investors to analyze Brazil as an opportunity.”

The proposal also separate the Central Bank from the Ministry of Economy and considers the institution as a special authority with no ties, tutelage or hierarchical subordination to any ministry, guaranteeing technical, operational, administrative and financial autonomy.

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Alex Agostini, chief economist at Austin Rating, tells Reuters the measure is positive. “The Central Bank, with this autonomy, strengthens the institution, gains even more credibility and gives more stability and predictability for the management of monetary policy.”

According to a report by Chamber of Deputies News Agency, a 2012 survey by the British Central Bank shows that among the 27 countries that work with inflation targets, Brazil was the only one that did not adopt a model of operational autonomy with fixed mandates in its Central Bank.