An expected rise in the Selic rate to 10.75% at the Feb. 2 policy meeting, signalled by the bank's rate-setting committee after its last hefty move in December, would total 875 basis points of cumulative tightening since March 2021.
Inflation, which is running hot nearly everywhere in the world, has roughly doubled in Brazil from a little over 5% when the central bank began raising rates to around 10% now.
All but two of 29 economists polled Jan. 24-28 forecast a 150 basis point rate hike at the Feb. 2 meeting. One said 125 basis points and another said 100.
However, rather than worry about the negative effect on a recessionary economy of such aggressive moves, Brazilian policymakers fear inflation could accelerate further if lift-off by the Fed rekindles a streak of losses for the real currency.
The Fed's recent switch to a hawkish stance - it has yet to raise its federal funds rate from a record low of 0-0.25% but is likely to do so in March has suddenly emerged as a top worry for Latin America's biggest economy.
That is on top of more rooted themes such as fiscal slippage and a presidential election in October.
"Risks related to domestic public accounts, political uncertainty and the prospect of an increase in international interest rates are adding upward pressure on Brazilian interest rates," Lucas Godoi, chief economist at GO Associados, said.
While Brazil's economy is in danger of sinking deeper into recession, the bank's chief Roberto Campos Neto says attacking inflation with a stricter policy stance is the best way to contribute to growth.
In a sign of further economic deterioration, the country unexpectedly posted negative foreign direct investment (FDI) of $3.9 billion in December, the worst monthly figure it has ever recorded.
So far, Campos Neto's monetary orthodoxy has given mixed results. Brazil's IPCA-15 consumer price index decelerated this month from previous readings but still rose at a faster pace than expected.
This is likely to incite more aggressiveness from the central bank, as the consensus view for the Selic's maximum level this year was raised by 25 basis points to 12.00% from 11.75% in a separate Reuters poll earlier this month.
"Above-expectations IPCA-15 decreases the space for any pace slowdown," Citi analysts wrote in a report. "Secondly... the recent increase of commodities prices amid an undervalued exchange rate suggests that inflation would remain high."
(Reporting and Polling by Gabriel Burin in Buenos Aires; Editing by Ross Finley, Kirsten Donovan)
By Gabriel Burin