Key facts
- Durigan said Lara Resende's proposal was an early-stage idea for public debate with several shortcomings.
- Lara Resende proposed gradually lowering the benchmark rate to around 7.5%, almost half its current level.
- Durigan said the government had not concluded talks on gradual fiscal-adjustment measures consistent with Lula's campaign promises.
- A Reuters poll showed analysts expect the central bank to pause its easing cycle at its decision on Wednesday.
Brazil Finance Minister Dario Durigan said on November 3 that President Luiz Inacio Lula da Silva is not considering a proposal from economist Andre Lara Resende to cut the benchmark interest rate as a way to reduce the government's debt burden. "There is nothing along those lines on the table, and it's important to make that clear," Durigan told reporters, adding that no meeting was scheduled between Lara Resende and Lula.
A local media report that Lula could meet Lara Resende in the week of the minister's remarks sparked wide discussion in Brazil and raised questions among investors about whether the leftist leader might be considering a radical shift in monetary policy. Lara Resende, an architect of the Real Plan that stabilized the economy in the 1990s, argued in an essay published in September that Brazil's debt interest bill has been the main driver of the country's fiscal deterioration.
He proposed gradually lowering the central bank's benchmark interest rate to around 7.5%, almost half its current level. Lower borrowing costs would curb debt accumulation and improve fiscal credibility while foreign-exchange intervention and the structure of Brazil's debt would help contain inflation risks, he said. Many private sector economists opposed the idea, saying it could weaken Brazil's currency.
Durigan said he viewed the proposal as an "early-stage idea put forward for public debate" but added that it had "several shortcomings." Brazil's central bank is due to announce its next monetary policy decision on Wednesday after five consecutive 25-basis-point cuts that lowered the benchmark Selic rate to 13.75%. A Reuters poll showed analysts expect the central bank to pause its easing cycle.
Durigan also said the government has not concluded discussions on gradual fiscal-adjustment measures consistent with Lula's campaign promises, which could push up public spending. "We are not discussing anything that would justify a fearful market reaction," he said, adding that "necessary answers" would come soon.