Brazil’s central bank is likely to pause its interest-rate cuts in its first decision since President Luiz Inácio Lula da Silva’s reelection, as worsening inflation expectations and mounting political pressure complicate the broader policy outlook.

Investors were already on edge after Lula’s unexpected victory dashed hopes for tighter fiscal policy, triggering a sharp repricing of Brazilian assets. Now a surge in post-election noise is adding to the unease, as some presidential allies push for lower borrowing costs despite above-target inflation and urge Lula to fill vacant central bank board seats with left-leaning nominees.

Policymakers led by Gabriel Galípolo are expected to hold the benchmark Selic steady at 13.75% late on Wednesday after five straight cuts, according to most analysts in a Bloomberg survey. Expectations for loose public spending in Lula’s new term are driving inflation forecasts further above the 3% goal while weakening the real, all but eliminating room for more easing. Going forward, renewed political wrangling stands to make central bankers’ job even harder.

The central bank is formally autonomous, limiting Lula’s ability to directly influence interest-rate decisions. But the president has two vacant board seats to fill now and will have two more nominations next year, giving the leftist leader an opportunity to reshape the institution’s direction.

Those central bank appointments represent a particularly sensitive point for financial markets. Privately, investors worry the president could use those decisions to bolster his desire for lower rates by tapping officials who are sympathetic to his views, potentially at the expense of inflation control.

The concerns extend into the government. Some officials sense that speculation over potential nominees — combined with political distractions from allies concerning the central bank — could further unsettle investors who are questioning the outlook for inflation and monetary policy, according to people familiar with the discussions.

At stake is the risk that pessimism gets entrenched in Latin America’s largest economy. Brazil analysts already raised their key rate and inflation forecasts through 2029, according to a central bank survey published on Tuesday — the first one carried out since last month’s runoff.

Some Lula allies are pushing the president to meet with economist André Lara Resende, who recently argued the central bank should lower interest rates dramatically because its current monetary policy is the chief cause of rising public debt.

The potential encounter has generated concerns among investors. Members of Lula’s economic team are also wary, believing it could open the door to additional external pressure on the central bank, especially if policymakers halt the easing cycle this week, according to people familiar with the matter.

Lula has made no decisions about who he will appoint to the central bank, people familiar with the matter said. One person described the current talks as consistent with the president’s usual approach: allowing allies to consult economists and solicit different views before he makes a final decision.

Finance Minister Dario Durigan pushed back against investor worries Tuesday, saying Lula hasn’t discussed new central bank nominations since the Oct. 25 runoff and that the government will use “technical rigor” to select directors. Durigan added that “there has been nothing that would justify the market’s fears” in his own meetings with the president, and that Lula had no meeting planned with Lara Resende or other economists.

For much of 2026, the external backdrop played a central role in shaping expectations for Brazil’s interest-rate decisions. Still, as local economic growth slowed later in the year and with Lula now set for another term, the focus is shifting back to domestic developments.

Brazil’s industrial production has fallen in three of the past four prints, while sectors like retail have also remained muted. Leandro Padulla, an economist at ASA, still sees room for another quarter-point rate cut, although he said a pause can’t be ruled out.

The post-election shift in economists’ forecasts suggests that, even if the easing cycle continues on Wednesday, there will be plenty of reasons to keep rates restrictive for longer, Padulla said. Lula’s fiscal stance in particular is a top inflation driver.

The leftist leader rolled out a series of stimulus measures throughout this year, but the pace accelerated as the runoff approached. The government announced costly initiatives that will weigh on the budget and could prop up domestic demand, including free public transportation on weekends, cash rebates on energy and debt relief for small entrepreneurs.

The central bank will also have to assess additional changes coming in 2027. Plans to shorten the workweek and the first stages of tax reform could affect labor costs, prices and economic activity, complicating efforts to correctly calibrate monetary policy and bring inflation back to target.

The Brazilian central bank’s decision on Wednesday will be announced after 6:30 p.m. in Brasília, along with a statement.

For Brendan McKenna, an emerging-market strategist at Societe Generale in New York, policymakers will stop easing now and leave rates unchanged for the foreseeable future. “The selloff was significant enough to justify a pause,” McKenna said. “We’re likely to see a temporary uptick in inflation.”