Lara Resende's plan foresees Selic at 7.5% in 12 months and interest rates between 3% and 5.5%

Economist André Lara Resende, one of the authors of the Real Plan, formulated a proposal to reduce the Selic rate from the current 13.75% per year to 7.5% in just 12 months and then maintain it permanently in a range between 3% and 5.5%. According to Globo, cited by manager Ramiro Gomes Ferreira, from the Clube do Valor channel, the idea should be taken to President Lula this week.

For Ramiro, the plan is frightening, and the central warning is not the size of the cut, but who decides the interest rate. The proposal has three parts: the fall in the Selic with a trajectory announced in advance, the ceiling and floor for the rate (the floor would be the inflation target of 3% and the ceiling, 5.5%) and the creation of a national fiscal and monetary council. This body would define coordinated interest and public accounts targets for four or five years, which, in the presenter's opinion, would take the decision away from the Central Bank and hand it over to those who spend public money.

The diagnosis and the remedy

The presenter recognizes that Lara Resende's diagnosis is correct. The country's gross debt approaches R$11 trillion, equivalent to 82.5% of GDP, with an average cost of 12.68% per year. This represents around R$1.4 trillion in annual interest, more than 10% of everything the country produces. As this cost grows by close to 13% per year and nominal GDP grows by close to 7%, the debt rises by almost 6% per year in relation to GDP, even without an increase in spending. For Ramiro, the problem lies in the remedy, not in the assessment of the fiscal framework.

The author himself, according to the presenter, admits that the main risk is capital flight and the devaluation of the real, which would put pressure on fuels and imports. The plan envisages using international reserves, currently over US$350 billion, to contain the dollar. Ramiro recalls that the market has already shown sensitivity: on October 26, the day after the second round, the stock market fell almost 14%, with the first circuit breaker since March 2020, and the dollar rose 8%.

What history teaches

The channel uses two precedents. In Turkey, President Erdogan changed three central bank presidents in less than two years and cut interest rates from 19% to 14% between September and December 2021, with inflation above 21%. The lira lost 44% of its value against the dollar in 2021, inflation reached 83% in September 2022 and then 85%, and interest rates had to rise to 50% in March 2024. Today it is 36%, with inflation of 29%.

In Brazil, the channel cites 2011, when the BC cut the Selic rate from 12.5% ​​to 12% after then-president Dilma Rousseff said that interest rates should fall. The rate reached 7.25%, inflation was close to 6% in 2012 and 2013, and the Selic rose again to 14.25% in July 2015, with inflation of 10.67% for the year. GDP fell by 3.8% in 2015 and 3.6% in 2016. Ramiro points out that the recession had several causes, but attributes part of it to the forced cut. Economist Sérgio Vale, from MB Associados, assessed that something similar had already been done in 2012 and it was a disaster.

Base scenario and what it means for the investor

Ramiro states that Brazil is not Turkey: inflation here is at 4.58% in 12 months, the Central Bank has had autonomy by law since 2021 and Gabriel Galípolo's mandate runs until the end of 2028. According to Folha, members of the economic team said that there is no formalized meeting, and Lara Resende himself admits that the institutional environment may not support immediate implementation. Therefore, the presenter considers it unlikely that the plan will move forward. Its base scenario is GDP at a standstill, possible recession in 2027 and 2028 and high real interest rates for longer.

For the presenter, the lesson for investors is to create portfolios that resist different scenarios, with diversification between post-fixed, inflation-linked and pre-fixed income, Brazilian and American shares and dollar installments, in addition to periodic rebalancing. He mentions that, after the Collor Plan, the Ibovespa reached an increase of 304% above inflation in five years for those who bought at the bottom. This is an evaluation of the channel, not a recommendation from The X-Trader News.

Automatically translated from Portuguese.