Proposal to limit the basic rate in the Lula government worries the financial market
In an article, economist André Lara Resende defends a gradual reduction in interest rates. Selic is at 13.75% p.a. and Lula's allies are pressing for a cut.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM REVISTA OESTE · 3 MIN
A proposal to reduce the basic interest rate gained ground in the political debate and began to worry the financial market. According to Revista Oeste, economist André Lara Resende presented in an article a set of changes in fiscal and monetary policies, accompanied by a gradual reduction in interest rates, and the idea entered Lula's (PT) radar.
Lara Resende has a well-known trajectory in Brazilian economic policy. He was the formulator of the Real Plan in 1994, as well as a former director of the Central Bank and former president of the BNDES in the Fernando Henrique Cardoso government. According to Revista Oeste, he got closer to Lula in recent years, declared support in 2022 and joined the transition team, but declined the invitation to the Ministry of Planning.
Meanwhile, according to Estadão, the president's allies are putting pressure on the market and the Central Bank for a cut in the base rate before this week's Copom meeting. Selic is currently at 13.75% per year.
The scenario has changed since the election. Before the result, the bet was for a cut of 0.25 percentage points, but, after Lula's victory, part of the market started to reevaluate this drop because of fiscal uncertainty in the new mandate, according to Estadão.
The subtitle of the Revista Oeste report mentions a drop of 6 percentage points in the basic rate, but the text does not detail this reduction. This gap helps explain the caution on the part of analysts, who still do not know whether the proposal is a long-term policy suggestion or an occasional debate.
For those who defend fiscal responsibility, the discussion about interest cannot be separated from public accounts. It is the fiscal framework that guides investors' confidence in Brazilian assets, and, when the market questions the direction of the accounts, a possible drop in interest rates stops being just a technical decision and starts to be read as a political signal.
What changes for the investor
In the short term, what matters is the market's reading of the new government's monetary and fiscal policy, more than the article itself. If the expectation of a cut is confirmed, lower interest rates tend to change the calculation of fixed income and the stock market, while uncertainty about the accounts could put pressure on the dollar and risk assets. If political pressure prevails over the technical timeline, volatility could increase. Those who invest must follow the Copom's decision, the Central Bank's speech and the signals that the government gives about public accounts.
Automatically translated from Portuguese.
