Brazil Congress approves major spending bill, lifting Bolsonaro re-election hopes

BRASILIA (Reuters) - Brazil's Congress on Wednesday approved a major spending package that President Jair Bolsonaro is banking on to lift his flagging re-election hopes, despite expectations it will fan double-digit inflation and hurt Brazil's exchange rate.

Brazil's lower house approved the measure, which amends the constitution to bypass the country's spending cap and boost social benefits. It now must be formally enacted by both houses in a joint session of Congress.

The package includes a 1,000 reais ($185) payout for self-employed truckers, benefits for taxi drivers, and 50% increases in social welfare payments.

The bill has caused alarm among investors, who say it shows a lack of fiscal discipline by the government. The government argues that it needs to act urgently to help Brazilians hurt by high inflation.

But the new legislation is likely to further fan inflation now at around 12% and may result in fresh monetary tightening, analysts told Reuters. The dollar has already gained 13.95% against the real since the beginning of June.

Bolsonaro trails leftist former President Luiz Inacio Lula da Silva in opinion polls ahead of the October vote. The popularity of the far-right former army captain has been hurt by the high inflation, a weak economy, and his handling of the COVID-19 pandemic.

(Reporting by Ricardo Brito; Writing by Peter Frontini; Editing by Leslie Adler and Rosalba O'Brien)