Published Saturday, 7 November, 1:05 p.m. ET · Source: Banco Central do Brasil (Brazil’s central bank), public statements by the economists
A Brazilian economist has warned that cutting the benchmark interest rate in half could push the real into a currency crisis. Paulo Gala, an economist and professor at the Getúlio Vargas Foundation (FGV), a leading Brazilian university and think tank, made the case in a video summarised on Saturday 7 November.
He answers André Lara Resende, a former central bank director and one of the designers of the 1994 Real Plan, which ended Brazil’s hyperinflation. Gala agrees with the goal of a lower rate but not with the method.
Where the Rate Stands
Brazil’s central bank held its benchmark rate, the Selic, at 13.75% on Wednesday 4 November. The decision by its rate-setting committee, known as Copom, was unanimous and ended a run of five cuts.
The Selic therefore stands at 13.75%. Gala’s example starts from 14%, a slightly older level.
File photo: aerial view of Brasília’s government district, with the twin towers of the National Congress.The Plan Gala Is Answering
André Lara Resende, a former central bank director, has proposed cutting the Selic by roughly half, to about 7% to 7.5%, on a gradual path. He argues that Brazil’s foreign-currency reserves are large enough to cushion any fall of the real along the way.
The central bank reported reserves of US$367.9 billion on 5 November. Our earlier articles covered the idea and reactions among President Lula’s allies.
Why Gala Says a Forced Cut Backfires
Gala argues that Brazil pays about R$1 trillion a year in interest on its public debt (about US$182 billion at R$5.50 per US$), nearly 10% of the economy. By comparison, he says, the primary deficit, which excludes interest, has ranged between R$50 billion and R$100 billion (about US$9 billion to US$18 billion).
Almost R$5 trillion (about US$907 billion) of domestic debt falls due within twelve months, he says, so the state depends on investors renewing it willingly. If the government forces yields down and investors judge the risk too high, he warns, they would sell and buy dollars.
He argues that heavy daily currency trading means a defence of the real could burn through reserves in weeks. A weaker real would then raise the cost of fuel, food and other inputs.
What Gala Proposes Instead
Gala shares the goal of a lower Selic and says nobody disputes it. His answer is fiscal moderation, not the austerity of Joaquim Levy, Brazil’s finance minister in 2015, or of Argentina’s president Javier Milei.
“Nobody here is defending a squeeze on the population,” Gala says. He calls instead for “fiscal moderation and strategic intelligence.”
What Prediction Markets Say
Bettors see no immediate change. Polymarket, a prediction platform, gives 88.5% to no change in Brazil’s rate at the December meeting, with US$64,048 traded, and a 5.7% chance of a quarter-point cut (7 November, 12:35 p.m. ET).
For the January meeting the same platform gives 58.0% to no change and 16.7% to a quarter-point cut, with US$13,017 traded. The March market gives 57.5% to no change, with US$10,457 traded.
Why we show this: prediction markets turn real-money bets into a live probability that moves within minutes of the news, which is why investors, campaigns and newsrooms in the United States now follow them closely. We show them next to polls and official results, never instead of them.
What It Means for You
Nothing in the central bank’s 4 November decision adopts the plan, so holders of Brazilian bonds and the real face no new rule today. Finance Minister Dario Durigan has said the government is not studying a rate cut by decree.
The next official signal is the Copom minutes, due on Tuesday 10 November, which will show how the committee weighed the pause. The central bank’s reference rate for the real was R$5.50 per US$ on Friday 6 November.
What Is Not Known
We could not open Gala’s video itself, so his figures come from a summary of it and are his claims, not verified data. We have not seen the government or the central bank adopt Lara Resende’s plan.
More: Brazil news in English; Brazil Rate Cap Idea Wins Some Lula Allies; Brazil Denies Plan to Cap Interest Rates.
Frequently Asked Questions
What is the Selic?
The Selic is Brazil’s benchmark interest rate, set by the central bank’s committee, Copom. It stands at 13.75% after the 4 November meeting.
What does André Lara Resende propose?
He proposes lowering the Selic gradually by roughly half, to about 7% to 7.5%, and using foreign-currency reserves to cushion any fall of the real.
Why does Paulo Gala object?
Gala argues that forcing rates down would make investors sell government debt and buy dollars. He warns that this could drain the central bank’s reserves in weeks.
Sources: Banco Central do Brasil, Copom statements; Banco Central do Brasil, reserves series; Copom decision of 4 November 2026; international reserves of 5 November 2026; statements of Paulo Gala and André Lara Resende, read on 7 November 2026.