By Gabriel Burin

BUENOS AIRES, (Reuters) – Brazil’s benchmark interest rates will rise by at least 100 basis points Wednesday. This is in response to inflation fears arising from fiscal woes.

Copom, the rate-setting bank committee will continue to be hawkish. Policymakers may express concerns over new welfare programs that might violate strict fiscal regulations.

Roberto Campos Neto (Banco Central do Brasil) has been the most assertive hiker in the past year. This was despite the fact that the economy is recovering after a recession caused by the coronavirus pandemic.

The median prediction of 31 economists from Oct. 18-22 was for an increase in the Selic rate, which is now 7.25%. This figure had been revised by four international banks in 24 hours.

JPMorgan Chase & Co (NYSE:), Morgan Stanley (NYSE,) Credit Suisse (SIX) Now predicting an increase of 125 basis points. UBS looks at 150. On Thursday and Friday, the four lenders shared their latest views.

Others could also follow them in increasing their early forecasts of a 100 basis point move, after budget concerns flared up this week. The majority of the 25 respondents who replied on Monday and Tuesday expected a move at 100 basis points, with 4 placing bets on 125 and 2 on 150.

Jose Francisco Goncalves was chief economist of Banco Fator and wrote in a note that Copom could not change its mind regarding fiscal risks or give up on trying to reduce inflation to target. “We modify our call to 2 hikes of 150 (basis points) in the next meetings.

Brazil’s economic minister has opened the door to an exception to the constitutional spending limit in order to fund a larger welfare program, as proposed by Brazilian President Jair Bolsonaro.

The domestic market plunged after the comments of Bolsonaro appeared to contradict previous assurances that Brazil could raise payouts but not stretch its tight fiscal rules.

Brazil’s current inflation crisis is partially due to high levels of economic uncertainty. This has resulted in Brazil experiencing an increase in its gross debt, which now amounts to 82.7%.

Consumer prices in Brazil rose at the fastest pace for more than 5 years in September. It climbed 10.25% over 12 months. The inflation rate is at least 1.5 percentage points above the target of 3.75 percent for 2011.

According to the poll, 25 economists believe that the Selic will reach 9.0% during the first quarter in 2022. That’s 50 basis points less than what was seen in the last survey. This level of cost should be maintained until December and then slowly fall thereafter.

Bolsonaro has seen his popularity drop ahead of the 2022 elections due to increasing inflation and Bolsonaro’s inaction on the pandemic. His 2018 campaign compared Bolsonaro’s welfare programs to voting schemes. He now wants to grow the program.

According to Felipe Sichel of Banco Modal, strategist Felipe Sichel said, “Given inflation and election dynamics the risks for Selic rates are heavily skewed towards the upside.” “The central bank will stress the need for higher rates in an effort to curb rising consumer prices.”

Reporting and polling by Gabriel Burin, Buenos Aires. Editing by Matthew Lewis