Lara Resende's text on interest reignites debate on public accounts

The discussion about public accounts gained strength again after a text by Lara Resende, a member of the group of formulators of the Real Plan, had repercussions. According to InfoMoney, the author suggests that the fiscal adjustment be led by the Central Bank, with gradual and continuous drops in interest rates. The text, which presents itself as a denunciation of interest rates considered abusive and proposes to put an end to them, was published on September 28, according to Money Times.

The repercussion, however, is recent. According to Money Times, the material only gained prominence last weekend, after Gleisi Hoffmann released it. The same publication says that the president had called the author to speak at the government headquarters, Palácio do Planalto. With the episode, investors became restless in November, as analysts feared a turnaround in economic policy and an inflationary spiral similar to that of the 1970s and 1980s. Some of these economists began to label Lara Resende as heterodox.

Among the most influential analyzes is that of Cochrane, a senior researcher linked to Stanford University through the Hoover Institution. According to InfoMoney, it classifies the text as sophisticated and consistent from an economic point of view, but suggests a coordinated reform that combines fiscal, monetary and microeconomic aspects. Estadão points out that Cochrane rejects, in part, the compulsory drop in interest rates, views with reservations the thesis of containing inflation by cutting interest rates and says that there is no historical example for the proposal. Lara Resende himself, according to Estadão, cites Cochrane as a representative of the orthodoxy that questions the framework in which inflation is combatted by raising interest rates.

The backdrop is a market that is already concerned about the cost of money. According to Gazeta do Povo, the market fears more expensive credit after Lula's re-election.

What changes for the investor

In practice, the debate shifts the focus to the design of monetary policy and the relationship between interest and public accounts. If the discussion progresses, the trajectory of the basic rate and the credibility of the framework will become the subject of dispute, which tends to weigh on long interest rates, exchange rates and the risk premium required for Brazilian assets. For those who invest in the stock market, interest or the dollar, the central point is predictability: any sign of change in the interest rate regime changes the pricing of risk and the cost of credit, without this allowing prices to be anticipated.

Automatically translated from Portuguese.