Market sees ‘blackmail’ from Centrão and ‘groundless threat’ in project to dismiss Central Bank directors

Market participants were alarmed by the urgency request signed by Centrão leaders for the processing of a bill that allows Congress to dismiss members of the Central Bank’s board of directors. Overall, there is an assessment in the market that the proposal is unlikely to move forward. In this scenario, the reflection on financial asset prices was almost non-existent, despite investors’ concerns. ‘It’s a threat without much substance,’ summed up one strategist. ‘It’s blackmail from Centrão,’ says another. Among the arguments circulating in the market that support the view that the project is unlikely to prosper are the Senate’s reluctance to share power with the Chamber and the current context of the National Congress, especially in the Chamber. Quoting a political consultant, a market participant notes that there is an environment where trial balloons go up and down very quickly, and that the case of this proposal may be one of those, given the context of some pressure on the Central Bank for the approval of the sale of part of the Banco Master to the Banco de Brasília (BRB). ‘It’s a veiled threat, an attempt to interfere in the decision-making process of the Central Bank, which is very bad. I think the chances of approval are low, but if it progresses, it should require a higher risk premium. The nature of the issue is supervision, not monetary policy, but it makes the directors’ positions more fragile. It could become more difficult for the Central Bank to attract good names to the forefront. In this sense, the yield curve could ‘steepen’ [long-term interest rates rise more than short-term ones], but only if it becomes clear that the project could be approved.