Brazil's central bank will likely raise interest rates for the first time in two years due to a heated economy and an above-target inflation outlook.

In contrast, the U.S. central banking system just cut rates by a half percentage point Wednesday afternoon.

Brazilian policymakers led by Roberto Campos Neto will lift the benchmark Selic by 25 basis points to 10.75% late on Wednesday, according to 31 of 35 economists in a Bloomberg survey.

Two economists are forecasting a higher increase of 50 basis points the other two expect the rate to stay the same.

Most traders are expecting a rise of 25 basis points, with digital options at the local stock market pricing in a 15% chance of a 50 basis-point hike.

Latin America's largest economy differentiates itself from peer economies as its economic activity shows resilience to high borrowing costs. President Luiz Inacio Lula da Silva's increased public spending is boosting family income that is propped up supported by low unemployment.

A resilient economy along with questions about the government's commitment to fiscal responsibility are feeding into inflation projections which are above the 3% goal through 2027.

"Brazil's central bank is widely expected to embark on a hiking cycle on Wednesday, but there's plenty of questions that the post-meeting communication could clarify,” said Adriana Dupita, Brazil and Argentina economist for Bloomberg Economics.

“W expect the BCB to strike a delicate balance as it aims for a hawkish tone to curb inflation expectations, flexibility to adjust the rate path on new data and to push back on market pricing for aggressive hikes. Achieving all three is a tall task."

Price Action: Brazil exchange-traded funds saw gsins and losses into Wednesday’s early-afternoon trading.

IShares MSCI Brazil ETF (NYSE:EWZ) slipped 0.75%
Franklin FTSE Brazil ETF (NYSE:FLBR) fell 0.63%
iShares MSCI Brazil Small-Cap ETF (NASDAQ:EWZS) went up 0.03%

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