Brazilian President Criticizes High Interest Rates

SAO PAULO (Reuters) – Brazilian President Luiz Inacio Lula da Silva criticized what he perceives as excessively high interest rates, stating that borrowing costs are "the only thing wrong" in Brazil.

Lula's comments followed a unanimous vote by the central bank to accelerate monetary tightening with a 100-basis-point hike, raising interest rates to 12.25% and signaling further increases for the next two meetings.

"The only thing wrong in this country is the interest rate being above 12%. There is no explanation," Lula said in an interview with TV Globo after being discharged from the hospital following emergency surgeries.

"Inflation is around 4%, fully controlled," he added, stressing that the responsibility lies with those hiking the interest rates, not his government. "But we will take care of that."

Concerns about Brazil's fiscal outlook have contributed to the currency hitting record lows after the Lula administration presented a spending control package that did not fully satisfy expectations regarding rising public debt. Lula defended these measures, which are pending Congressional approval.

"We did what was possible and sent it to Congress," he remarked, asserting, "There is no one as fiscally responsible as I am in this country. If I do not control spending, if I spend more than what I have, the poorest will pay for it."

The central bank's decision this month was influenced by market reactions to the fiscal package, leading to deteriorating inflation expectations diverging from the regulator's 3% target.

Brazil's annual inflation rate reached 4.87% in November, surpassing the central bank's target range of 1.5% to 4.5%. Policymakers are committed to reducing inflation back to 3%.

Lula has frequently criticized high interest rates and central bank governor Roberto Campos Neto, an appointee of previous right-wing President Jair Bolsonaro. With Campos Neto's term ending this month, he will be succeeded by Lula-nominated Gabriel Galipolo.

Next year, Lula's appointees will hold a 7-2 majority on the bank's nine-member rate-setting committee, increased from the current 4-5 minority.