Brazil rules out radical rate-cut plan

Brazil’s Finance Minister Dario Durigan said on Tuesday that President Luiz Inacio Lula da Silva is not considering a proposal to sharply reduce the country’s benchmark interest rate as a tool to lower the government’s debt burden. He stated that there is “nothing along those lines on the table,” pushing back on speculation that the administration might pursue a radical change in monetary policy.

Durigan also said there is no meeting scheduled between Lula and economist Andre Lara Resende, whose ideas had prompted debate in financial markets. The clarification came after a local media report said Lula could meet Lara Resende this week, prompting questions among investors about potential political pressure on interest-rate settings.

In an essay published in September, Andre Lara Resende argued that Brazil’s high interest bill on public debt has been a key driver of the country’s fiscal deterioration. He proposed gradually reducing the central bank’s benchmark rate to around 7.5%, which he described as a way to contain debt accumulation and bolster fiscal credibility.

Lara Resende suggested that lower borrowing costs, combined with foreign-exchange intervention and the existing structure of Brazil’s debt, could mitigate inflation risks. His proposal, however, met strong opposition from many private-sector economists, who warned that such a move could weaken Brazil’s currency.

Durigan characterized Lara Resende’s plan as an “early-stage idea put forward for public debate” and said it had “several shortcomings.” While acknowledging the discussion it generated, he emphasized that it does not reflect the government’s current policy agenda.

Brazil’s central bank is scheduled to announce its next monetary policy decision on Wednesday. The decision follows five consecutive 25-basis-point cuts that have brought the benchmark Selic rate to 13.75%. A poll of analysts points to expectations that the central bank will pause its easing cycle at this meeting.

Durigan said the government has not yet concluded internal talks on gradual fiscal-adjustment measures that are in line with Lula’s campaign commitments, which could entail higher public spending. He stressed that the administration is not considering steps that would justify a fearful reaction from financial markets and said “necessary answers” on fiscal policy would be provided soon.