By Win ThinNEW YORK ( TheStreet) -- Brazil's central bank starts its two-day meeting Tuesday, and recent inflation data have shifted market expectations about the size of the interest rate hike the bank will announce Wednesday. The Mid-July IPCA just came out and fell unexpectedly month over month, which led to further easing in the year-over-year rate, to 4.7% from 4.8% in June and 5.1% in mid-June. Interest rate futures have adjusted accordingly, with markets now pricing in a 50-basis-point hike. However, analysts expect the central bank to hike rates by 75 basis points to 11%. We also note that analysts are now looking for a year-end policy rate of 12%, down from 12.13% earlier this month, but up from 11.75% last month. Economic data remain strong even though price pressures eased slightly this past month, and so the case for sizeable tightening is still present. Thus, we think the central bank will announce a 75-basis-point hike Wednesday. We continue to hope that the government will institute another round of fiscal tightening in order to balance out policy and help the central bank avoid having to tighten excessively. But it's going to be tough, as the government just announced plans to spend 5.5 billion real (BRL) starting in 2011 to renovate 13 airports in 12 cities ahead of the 2014 World Cup. It also will spend 741 million real on seven ports ahead of the expected boost to tourism. The dollar-real currency pair (USD/BRL) saw resistance around 1.80 and appears to be moving back to test the downside of the 1.75-1.82 trading range that's been in place since early June. For now, that 1.75 floor seems to be a strong obstacle for the real, so the potential for appreciation is limited. On the other hand, high yields and limited BRL downside are proving to be quite attractive for investors. We continue to express a bit of concern regarding the October elections, just because markets appear to be too sanguine. There has been an element of risk introduced lately, as a split seems to be developing in Lula's Workers Party. The more radical wing of the party does not appear to be lining up behind Lula's chosen successor, Dilma Rousseff. Workers Party President Jose Dutra says that Lula, not the party, chose her. Most recent polls show Jose Serra and Rousseff tied, with about 40% support each. But we suspect any election-related BRL weakness will eventually be greeted with strong buying interest from longer-term investors.