Brazilian Finance Minister Dario Durigan said on Sunday that a proposal to cap the country’s benchmark Selic interest rate is not under consideration by President Luiz Inácio Lula da Silva. He also denied reports that Lula had a meeting planned with economist André Lara Resende, who has advocated a different approach to fiscal and monetary policy.

The comments followed reports that government officials were seeking a meeting between Lula and economists to discuss possible responses to the country’s fiscal challenges. Resende, one of the architects of the Real Plan, has proposed coordinating fiscal and monetary policy through a National Fiscal and Monetary Council that would set joint targets over a four-to-five-year period.

Under Resende’s proposal, the Central Bank would keep the Selic between the inflation target of 3% and estimated potential nominal GDP growth of about 5.5%. The rate would initially be lowered gradually over 12 months to 7.5%, with a two-percentage-point safety margin relative to potential GDP growth.

“None of these ideas, such as setting a cap on interest rates, is on the president’s agenda,” Durigan said. He added that no meeting with Resende had been scheduled, although several economists had offered to contribute and were in contact with BNDES president Aloízio Mercadante.

Resende has argued that Brazil’s fiscal problem stems from interest costs rather than primary spending, which excludes interest payments. He says high rates are pushing up the cost of public debt faster than the economy can generate wealth. The Selic rate is 13.75% a year and has been in double digits since 2022, according to the report.

The discussion has caused concern in financial markets. PT president Edinho Silva criticized speculation about economic policy and said Durigan is the only official authorized to speak for Lula’s government on the subject. Economic officials spoke with the president on Sunday after negative market reaction to reports of a possible meeting with Resende.

The debate is unfolding amid calls for the next Lula administration to present a credible fiscal plan. Some allies have urged an earlier decision on the economic team for a potential fourth term, hoping to provide clearer signals to markets and curb the dollar’s rise reported after the second-round result.

Sources: Folha Mercado.