By Marcela Ayres, Lisandra Paraguassu and Bernardo Caram
BRASILIA, March 17 (Reuters) - Brazil's central bank will make another interest rate decision this week with two empty seats on its monetary policy committee, which may remain open for several more months given tensions between the government and Senate leaders, people familiar with the matter said.
A Senate committee and plenary vote are required before any nominee can take office, leaving just seven of nine seats occupied on the rate-setting
committee expected to start a rate-cutting cycle on Wednesday.
Four sources told Reuters the vacancies have not been treated as a priority by President Luiz Inacio Lula da Silva, even after Finance Minister Fernando Haddad recommended candidates last month.
Two of the sources said Senate confirmation hearings are unlikely to move forward until federal police conclude their investigation of Banco Master, a failed lender that has consumed the capital, Brasilia, in a widening corruption scandal.
The sources declined to be named due to the private nature of the discussions.
The central bank and the presidential palace did not respond to requests for comment.
Lula's delay in filling the seats, vacant since January, contrasts with his repeated complaints that a 2021 central bank autonomy law had given him little sway over a central bank board chosen by his predecessor, right-wing leader Jair Bolsonaro.
If the leftist leader goes the rest of the year without filling the posts, the new board members would be appointed by whoever wins the next presidential election in October.
"Right now everything is fair game because no one knows whose name will appear in the newspapers," one source said, referring to leaks of political connections to Daniel Vorcaro, who controlled Banco Master, liquidated by the central bank in November and now under investigation for fraudulent loan portfolios.
With Congress out for recess in July and general elections in October, sources said the central bank's monetary policy committee, known as Copom, may stay short-handed for months.
The responsibilities of the "economic policy director" have been handled on an interim basis by Paulo Picchetti, international affairs director, while regulation director Gilneu Vivan is also overseeing the financial system organization area.
"I would not be surprised if this is not resolved until the end of the year," a second source said, adding that Lula has not reopened internal discussions since finance minister Haddad suggested nominating his economic policy secretary Guilherme Mello and economist Tiago Cavalcanti to the posts.
Lula has neither endorsed nor rejected publicly Haddad's recommended candidates, who are not seen as aligned with central bank chief Gabriel Galipolo.
However, Haddad's picks drew market pushback, with investors concerned about Mello's Workers Party ties and atypical economic background, and questioning his limited direct experience with financial markets, considered key for the economic policy role.
Brazil's central bank is not the only institution hamstrung by tensions in the Senate.
Lula tapped his Solicitor General Jorge Messias to join Brazil's Supreme Court in November, but has still not formally submitted his name to Congress given resistance in the Senate.
(Reporting by Marcela Ayres, Lisandra Paraguassu and Bernardo Caram; Editing by Brad Haynes and Sonali Paul)
