BRASILIA (Reuters) -Brazil's central bank chief Roberto Campos Neto emphatically defended the need for fiscal balance on Friday, following statements by leftist President-elect Luiz Inacio Lula da Silva that soured the markets by downplaying the issue's importance.
Speaking at an event hosted by the finance professionals association CFA Society Brazil, Campos Neto said the country needs to have an eye for social issues but also for fiscal balance, "otherwise we will return to a world of uncertainties."
Lula, who will take office on Jan. 1, pushed on Thursday for more room to increase social spending without setting long-term fiscal rules or naming his top economic policymakers, triggering a fall in Brazilian markets.
Campos Neto, who will head the central bank until December 2024, highlighted that the positive dynamics seen at the margin for Brazilian inflation need to be confirmed and will depend on the definition of the country's fiscal anchor going forward.
The negative reaction to Lula's comments is the latest example of investors delivering an immediate, bruising response to nascent governments' economic proposals, amid a challenging global backdrop of high inflation, weak growth and low risk appetite.
In Britain, for example, former Prime Minister Liz Truss resigned after markets shunned her plans for major unfunded tax cuts.
"I don't know if there was a Liz Truss moment for Brazil (yesterday), but it was a clear demonstration of the markets' sensitivity to the fiscal issue," said Campos Neto.
He said the central bank's autonomy would pass "an important test" but believed in the continuity of that status under Lula's future administration. Campos Neto also stressed that the bank's policymakers are open to participating in the transition government.