Brazil’s Lula not weighing proposal to slash interest rates, minister says

By Marcela Ayres

BRASILIA, Nov 3 (Reuters) – Brazil’s re-elected President Luiz Inacio Lula da Silva is not considering a proposal from an influential economist to slash benchmark interest rates as ​a way to reduce the government’s debt burden, Finance Minister ‌Dario Durigan said on Tuesday.

“There is nothing along those lines on the table, and it’s important to make that clear,” he told reporters, adding there was no meeting scheduled between economist Andre Lara Resende and Lula.

A local media report ‌that ​Lula could this week meet Lara Resende, ⁠who made the proposal ⁠and is an architect of the Real Plan that stabilized the economy in the 1990s, has sparked wide discussion in Brazil and raised questions among investors about whether the leftist leader might ​be considering a radical shift in monetary policy.

In an essay published in September, Lara Resende argued that Brazil’s soaring 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 to contain inflation risks, he said.

Many private sector economists opposed the idea, saying it could hammer Brazil’s currency.

Durigan said he ⁠viewed Lara Resende’s 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 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.

(Reporting by Marcela Ayres; Editing ​by Nia Williams)