How can Brazil lower interest rates? My take on Lara Resende's proposal

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Opinion: André Lara Resende wants to nearly halve the Selic rate. Here's where I agree, where I disagree, and my own proposal: an inflation target reviewed every 45 days and set at 2 to 3 times the level in developed countries, to bring the real interest rate down from 8,8% to around 3%.

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8,8% a year above inflation. That is Brazil's real interest rate today, one of the highest in the world. The Selic benchmark rate stands at 13,75%, while inflation over the past 12 months was 4,6%. Then André Lara Resende, one of the architects of the Plano Real, came along and said the rate could be cut almost in half within a year.

I read his proposal in full. I agree with part of it and disagree with part of it. At the end, I'll explain what I would do instead. This is the first article in Opinion on Brazil: I'm not here to give a lesson, but to tell you what I think about the economy, with the numbers on the table. You may disagree, and I want to hear why in the video comments.

1. Lara Resende's proposal in one minute

André Lara Resende is one of the economists who created the Plano Real. His views carry weight. In September 2026, he published an article called "Eu acuso" setting out a four-part proposal:

1. Announce the Selic cuts. The Central Bank would say in advance that it will lower the Selic from 13,75% to 7,5% over 12 months, then keep it in a range of 3% to 5,5%. Everyone would know the path ahead.

2. Create a new council. The Fiscal and Monetary Council would set government spending and inflation targets for 4 to 5 years. Remember this part: it's where I disagree.

3. Set a rule for real interest rates. The real interest rate should match the economy's growth rate. If the country grows by 2,5% a year, the real interest rate should be close to that, not the nearly 9% it is today.

4. Guard against a surge in the dollar. If the exchange rate spikes, the Central Bank would use Brazil's international reserves, which exceed 350 billion dollars.

The central argument: interest rates, not spending, are the problem

Here is his calculation. Public debt is about 80% of GDP. The government pays an average interest rate of 12,7% on that debt, while the economy grows by around 7% a year in reais. Even if the government spends exactly what it takes in, excluding interest payments, the debt still rises:

0,8 × (12,7% − 7%

÷ 1,07 ≈ 4,3 percentage points of GDP per year}

That is from interest alone. The government could eliminate all spending beyond its revenue, and debt would still rise by more than 4 percentage points a year. For Lara Resende, Brazil does not have a spending problem; it has an interest-rate problem.

The criticism

The proposal drew plenty of support, but also sharp criticism. Lara Resende draws on the ideas of American economist John Cochrane, who responded himself: the Central Bank controls the Selic, but it does not control real interest rates. The 10-year Treasury bond pays more than the Selic, which is the market's way of saying it does not trust the government's finances.

Free-market advocates went further, calling the idea "a Plano Real in reverse"link outside website: force interest rates down, and lenders will pull out while the dollar soars.

I'm not on either side. Here's why.

2. Where I agree and where I disagree

I agree with the diagnosis

A real interest rate of nearly 9% is unsustainable. No industry can invest when borrowing costs that much. No family can get affordable credit. And debt keeps growing on its own, as the calculation above shows.

I disagree with the timeframe

Fixed fiscal and inflation targets for 4 or 5 years make no sense in today's world. Look at the past six years:

2020 — the pandemic.

2022 — Russia invades Ukraine; oil and food prices surge.

2023 — war in the Middle East.

2025 — the United States starts a tariff war.

2026 — in November, the Copom stops cutting the Selic because of the dollar and El Niño.

That is five shocks in six years. What five-year target would have survived them? The target becomes a fiction, and a target nobody believes in cannot guide anything.

3. What I would do

Consider this number: inflation in the United States, the world's largest economy, is 3,7% over 12 months. Brazil's target is 3%. A developing country is aiming for lower inflation than the United States. To get there, the Central Bank needs extremely high interest rates, and we are paying the price.

Review the target every 45 days

The Copom already meets every 45 days, eight times a year, to set the Selic. At the same meeting, it would also set the inflation target, using inflation in developed countries as its benchmark.

For a developing country like Brazil, two to three times the inflation rate of the United States is natural. Today, that would mean between 7,4% and 11,1%; in practice, I would keep it below 10%.

Why two to three times?

Because inflation depends on how much a country can produce. It is a matter of supply and demand. Developed countries have robust industries: when people buy more, their industries produce more, so prices rise only a little. Here, when people buy more, industry cannot keep up, goods become scarce and prices rise.

Expecting the same inflation rate as developed countries means expecting us to have their industrial capacity. We don't.

What changes with a 7% target

Suppose the target rises to 7%. With that level of inflation accepted, the Selic could be 10%, and the real interest rate would fall from 8,8% to 2,8%:

(1 + 10%

÷ (1 + 7%) − 1 ≈ 2,8% real interest rate}

The government would pay less interest on its debt, reducing the overall deficit because interest payments are its fastest-growing expense. Industry could borrow more cheaply and invest. More industry would mean more supply, and over the long term, inflation itself would fall naturally.

What about you: would you accept 7% inflation in exchange for a 10% Selic? Let me know in the video comments.

4. Why is nobody discussing this?

If the idea makes sense, why does hardly anyone in Brazil talk about it? My theory is that it's generational.

Many of the people running Brazil today are over 45. They lived through 1990, when annual inflation hit 1.621% and Collor froze everyone's savings. They saw the rapid opening of trade and a flood of imports drive much of Brazil's industry out of business. And they lived through 1993, when inflation exceeded 2.400% in a year.

For anyone who experienced that, inflation above target feels like the start of a nightmare. I understand. To be fair, Central Bank president Gabriel Galípolo is 44. He is the exception; the rest of the system is not.

On one side are those who lived through hyperinflation. For that generation, inflation inspires fear, and paying high interest rates seems safer than taking a risk. On the other are people like me, who grew up after the Plano Real. To us, inflation below 10% is normal. Every country has inflation. Hyperinflation is the problem, and that is something else entirely. We know inflation will exist; we just need to control it.

5. What about the poorest?

The question always comes up: doesn't inflation hurt the poorest people?

Look at how things work today. The minimum wage is adjusted for inflation plus economic growth; in 2027, it is expected to rise from R$ 1.621 to R$ 1.741. And about two in every three INSS benefits are worth exactly one minimum wage, so they rise with it.

For a large share of the population, especially those on lower incomes, slightly higher inflation does not translate into a major loss of purchasing power because their income keeps pace with it.

6. The other side

To be fair, there are criticisms of this idea, and I want to address them.

"Higher inflation pushes interest rates up, not down: lenders demand more." My answer: that is why the target would track developed countries. It is not inflation without limits; it is inflation measured against a benchmark.

"The minimum wage is adjusted only once a year, and informal workers get no adjustment at all." Until the adjustment comes, money loses value. This is the strongest argument against my position, and I think it calls for compensation: a midyear adjustment, for example, if inflation passes a certain threshold.

It is also worth noting that inflation in developed countries is high because of the period we are living through, a period of war. Inflation is high across the world. Brazil should not try to be the exception.

In short

1. A real interest rate of nearly 9% is unsustainable. Lara Resende is absolutely right about that.

2. Fixed five-year targets make no sense in a world of wars and shocks every year.

3. My idea: set the inflation target alongside the Selic every 45 days, using developed countries as a reference. With a slightly higher target, interest rates fall, debt comes under less pressure and industry invests.

This is an opinion, not a lesson, and certainly not investment advice. Agree? Disagree? Tell me in the video comments, and let me know what economic issue you would like me to cover next.

Sources for the figures

André Lara Resende, "Eu acuso" (Substack, 25/09/2026).

John Cochrane, "Fisher and Resende in Brazil" (The Grumpy Economist, 03/11/2026).

Fernando Ulrich, "Um Plano Real ao contrário"link outside website (Mises Brasil, 08/11/2026).

Copom: Selic held at 13,75%link outside website (04/11/2026); 12-month IPCA through September 2026: 4,58% (IBGE).

United States: 12-month CPI of 3,7% (September 2026, BLS).

Minimum wage: R$ 1.621 in 2026 and R$ 1.741 projected in the 2027 budget.

INSS: about 2 in every 3 benefits are worth one minimum wage (Boletim Estatístico da Previdência Social).

IPCA in 1990 (1.621%) and 1993 (2.477%): IBGE.

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