巴西大选阵营就降低长期利率方案公开分歧，财政路径不确定性升温

Brazil's presidential campaigns are clashing ​over how to bring down long-term interest rates, with advisers to the leading candidates offering sharply ‌different prescriptions for reducing borrowing costs across the economy.

The debate has intensified ahead of Brazil's October 4 election and as investors continue to demand hefty premiums to hold long-dated government bonds, increasing financing costs for both the state and private sector and fueling ​concerns about the country's fiscal outlook and rising debt burden.

In an interview in Tuesday's edition of Brazilian ​newspaper Folha de S.Paulo, the chief coordinator for President Luiz Inacio Lula da Silva's ⁠re-election platform, Jose Sergio Gabrielli, proposed Treasury buybacks of government bonds as a way to curb long-term yields, ​similar to those recently carried out by the U.S. Treasury.

In the interview, Gabrielli criticized an editorial in Folha last week that called ​for urgent federal spending cuts to avert a fiscal crisis and bring down interest rates, saying the piece portrayed Brazil as being "on the brink of chaos."

Neither Lula's campaign nor the Treasury immediately responded to requests for comment.

Meanwhile, former Mines and Energy Minister Adolfo Sachsida, ​who joined the economic team of Lula's leading rival Flavio Bolsonaro last week, said that spending cuts, not market ​intervention, are the only sustainable way to lower rates.

In a post on X, he described Gabrielli's proposal as an artificial and "mediocre" ‌attempt to ⁠suppress borrowing costs.

"Technically, this means injecting liquidity into the economy ... and once that happens, inflation rises. When inflation rises, interest rates will have to rise as well," Sachsida said.

Brazil is currently paying about 7.5% in real interest rates on government bonds maturing in 2045, underscoring the hefty premium investors demand to finance the country over the long ​term amid doubts about its ​ability to control the ⁠rapid growth of mandatory spending.

Analysts are skeptical either candidate will be able to rein in Brazil's public finances, although market reactions to polls suggest the market favors Bolsonaro's ​program.

The country's large interest bill has been the main driver of rising gross public ​debt, a main ⁠solvency metric. Gross debt has increased by more than 10 percentage points since Lula began his third, non-consecutive term in 2023, to 81.9% of GDP.

Although Brazil's Treasury carried out a large-scale bond buyback in March following the U.S.-Israeli conflict with Iran, ⁠such operations ​are rarely used by the debt manager.

In public remarks, Treasury officials ​have argued that interventions in the secondary bond market to address high volatility follow a sequence of reducing auction supply, shrinking offer sizes, canceling ​auctions and, only as a last resort, conducting buybacks or other liquidity operations.