BRASILIA (Reuters)

Brazil's central bank chief Roberto Campos Neto on Monday emphasized a significant de-anchoring of inflation expectations in the country, stating the necessity of bringing inflation back to the 3% target, a commitment from policymakers.

Speaking at an event hosted by the 20-20 Investment Association, Campos Neto noted that the tight labor market data indicates the need to closely monitor services inflation.

He reiterated that policymakers opted not to provide monetary guidance to allow time for assessing the evolving scenario.

Campos Neto observed that consumer prices in Latin America's largest economy had been aligning with the central bank's target, but this trend had recently stalled.

He mentioned that both market and company surveys show expectations drifting away from the official inflation target, a shift also evident in inflation implied by market prices.

"Because we're seeing this huge de-anchoring … the central bank decided it was time to initiate the cycle," he stated, referring to the central bank's choice to raise its key interest rate by 25 basis points to 10.75% the previous month.

"And again, we think it's very important to make inflation converge (with the target). That's our job. That's our mission. That is determined by the government, and we will do that," he added.

The central bank's next monetary policy meeting is set for November, with predictions in the yield curve suggesting a rapid tightening, possibly a 50-basis-point rate hike.

Campos Neto mentioned it "remains a puzzle" why the labor market continues to be strong despite high borrowing costs, noting that fiscal stimulus explains only part of this situation.

He emphasized that Brazil's economic growth has consistently exceeded expectations for a long time, crediting part of this strength to structural reforms implemented over the past five to ten years.

"Obviously, there is a growing concern in Brazil that part of this is the fiscal (impact), and I think it is, but I believe there is also a structural element involved," he stated.