Under Henrique Meirelles, the Central Bank of Brazil has emerged as a model of restraint and prudence in Latin America. Facing a welcome boom in inflows of direct and portfolio investment and domestic demand, the bank has reacted with a predictable, well-communicated and conservative strategy on interest rates.
A policy of keeping rates high is all the more surprising as, in line with many regional central banks, the Brazilian bank does not enjoy official autonomy. Despite that handicap, it has won its spurs in fending off political intervention, most especially strident calls for lower rates.
That is in stark contrast to many in the region, particularly Venezuela and Argentina, which have allowed inflation to spin out of control and resorted to tried, tested and failed methods such as price freezes and tinkering with the calculation of inflation.
The Brazilian central bank has presided over a period in which low inflation and sustained growth have gone hand-in-hand. The economy posted growth of 5.7% in the third quarter, a figure that took most economists by surprise with its strength. That is translating into higher incomes (and some reduction in income disparity), stronger employment, and a huge and welcome expansion in bank lending, but without any relaxation in standards. The central bank also helped lay the groundwork for inflows of foreign investment both through capital markets and in direct investment.
The bank does face new challenges now. Global inflation trends and the local strong economy are starting to stoke inflationary pressures. Still, the central banks growth in reserves, which are now some $160bn, give it breathing room. The other spanner in the works is the vote by the Senate on December 11, 2007, not to renew the banking transfer tax, known by its Portuguese acronym CPMF, on which the government depends for R$40bn ($22.6bn) in annual revenue. That could hurt the primary surplus and lead to a delay in Brazil winning its investment grade rating.
That must be a source of frustration for Mr Meirelles. Still, he can console himself that he has long had to deal with an unpredictable political backdrop and plenty of political noise.