Cochrane sees logic in Lara Resende's suggestion to lower interest rates, with caveats

North American economist John Cochrane evaluated André Lara Resende's suggestion of cutting the Selic rate to 7.5% per year. According to Exame, he considers the arguments to be consistent and sees that the drop could mitigate the burden of interest on public debt. Even so, he did not take a position for or against the measure. Estadão describes the position a little differently: Cochrane does not fully agree with the interest reduction advocated by Lara Resende.

Cochrane works as a researcher at the Hoover Institution, an institute linked to Stanford University. According to Estadão, he considers Lara Resende's tax revenue to be economically sophisticated, since fiscal imbalance is one of the causes of inflation. In the same analysis, the economist is cautious about the idea of ​​reducing inflation by cutting interest rates, remembering that the proposal has no historical precedent. Exame adds reservations about fiscal policy, real interest rates and exchange rates.

As for Lara Resende, he participated in the preparation of the Real Plan. In Cochrane's view, he is an orthodox economist with great technical training, according to Estadão. This characterization contrasts with that of some market economists interviewed by Money Times, who called him heterodox. The same report recorded different fears: some fear a change in the economy's management, while others see the risk of an inflationary spiral along the lines of the 1970s and 1980s.

The proposal is in the article «Eu Accuso», published by Lara Resende on September 28th. According to Money Times, the text only caught attention on the weekend in early November, after Gleisi Hoffmann and other leaders close to Lula published it. This same article states that Lula, re-elected president, would have called Lara Resende to Palácio do Planalto to discuss the issue.

For the government, the Minister of Finance, Dario Durigan, was the one who spoke out. According to Estadão, he considered the suggestion embryonic and full of flaws. The discussion, therefore, revolves less around the Selic number and more around fiscal policy, a recurring theme in the reservations recorded.

Impact for those who invest

So far, the proposal is a discussion of ideas, with no decision announced by the government or the Central Bank. Still, the debate affects expectations about the path of the Selic, a variable that influences fixed income, exchange rates and the stock market. Those who follow the market should observe whether the government signals more or less commitment to public accounts, as the topic appears among the most recurrent reservations in the analyses, and how the discussion evolves after the conversations with Planalto. This report does not suggest the purchase or sale of any asset and does not project prices.

Automatically translated from Portuguese.