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(Bloomberg) -- Brazil’s central bank will likely pause its nearly yearlong cycle of interest rates cuts as policymakers face a full-blown credibility crisis and struggle to tame inflation expectations that are rising further above target.

All analysts surveyed by Bloomberg expect the bank led by Roberto Campos Neto to hold the Selic steady at 10.5% after markets close on Wednesday, except for two who forecast another quarter-point cut. Traders also see a halt now, and most are pricing in rate hikes later in the year.

Policymakers are caught in a mess exacerbated by last month’s split vote pitting members aligned with Campos Neto against directors appointed by President Luiz Inacio Lula da Silva who favored a bigger rate cut. That rift heightened fears that the central bank will turn more lenient toward inflation once the leftist head of state effectively gains control over the board majority later this year. The monetary authority gave no forward guidance after that decision.

What Bloomberg Economics Says

“Brazil’s central bank will likely pause its easing cycle on Wednesday with monetary policy still tight as it attempts to curb rising inflation expectations. We expect a more hawkish post-meeting statement, though policymakers may try to steer markets away from the rate hikes priced in by the yield curve.”

— Adriana Dupita, Brazil and Argentina economist

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Lula heightened tensions further by escalating calls for lower borrowing costs both this week and last, saying they are a key part of his plan to shore up public accounts. He slammed Campos Neto as “political,” called current rates “prohibitive” and said the central bank should do more to help growth.

Brazil’s decision will be published on the central bank’s website after 6:30 p.m. in Brasilia, with a statement from its board. Here’s what to look for:

Rate Split

Investors will pay attention to the vote count given another divided decision could entail a worst-case outcome. Assets could tumble further, even if the minority is smaller this time.

Inflation estimates have risen further above the bank’s 3% target almost every week since the prior decision in May, prompting analysts to privately warn the central bank that there’s no more room for rate cuts. Former policymakers point to a credibility crisis, with some drawing parallels to a spike in consumer price forecasts over a decade ago under Lula’s ally, Dilma Rousseff.

“They tried to reduce the noise, but the mark is still there,” said former central bank Monetary Policy Director Luiz Fernando Figueiredo, who joined the board in 1999 and worked at the institution through the beginning of Lula’s first presidency.

Campos Neto has said consumer price increases have been as “expected,” and has focused his concerns on a “continuing deanchoring” of inflation forecasts. Monetary Policy Director Gabriel Galipolo, who is seen as a candidate to become the next governor, has reiterated his commitment to the bank’s target.

“There’s space to seek consensus among the board,” said Fernando Goncalves, head of economic research at Itau Unibanco.

Fiscal Stress

Investor concerns about Brazil’s fiscal outlook are rising as Finance Minister Fernando Haddad faces headwinds in his push to shore up public accounts.

Most recently, Congress sent back a bill that would have raised much-needed revenues. Haddad initially responded by saying there’s no “plan B,” although he later indicated that the economic team will review all government spending.

“The bank has been very careful when speaking about the fiscal outlook,” said Carla Argenta, chief economist at CM Capital. “All recent market moves make room for an overall hawkish message” from policymakers.

In an interview with a local radio station on Tuesday, Lula said he is willing to review public spending but will only agree to cuts if his economic team demonstrates that they are necessary.

Central bankers could choose to avoid further tensions with the government in Wednesday’s decision by reiterating comments about the importance of fulfilling pledges to eliminate this year’s primary deficit, which excludes interest payments.

“With all key economic indicators worsening, they need to send a signal of cohesion,” said Caio Megale, chief economist at XP Investimentos.

US Cuts

Policymakers are likely to comment on tighter global financial conditions, after the US held its interest rates steady again last week while giving no concrete idea on when it will start easing.