Campos Neto says that fighting inflation is a social instrument and defends high interest rates.

Reuters - "Combating inflation is the greatest social tool that exists today," stated the president of the Central Bank, Roberto Campos Neto, on Tuesday, after arguing that the current level of interest rates in the country is compatible with the current inflationary problem.

In a public hearing before the Senate's Committee on Economic Affairs (CAE), Campos Neto said that the agency performs technical work with a highly qualified staff and seeks to fulfill its mandate at the lowest possible cost to society.

>>> The Central Bank president explains the interest rate level to the Senate; watch live.

"The Central Bank has a technical operational horizon that often differs from the political cycle, but which maximizes the long-term results for society," he said.

Campos Neto emphasized that the central bank considers current inflation, the output gap, and inflation expectations to determine the basic interest rate.

The invitation for the president of the Central Bank to appear before the Senate to explain the current level of the country's benchmark interest rate, unchanged at 13,75% per year since September, was approved in March, amid attacks from the government on the conduct of monetary policy.

In recent months, President Luiz Inácio Lula da Silva has made a series of criticisms of the Central Bank, arguing that the high level of interest rates in the country excessively contracts economic activity and could result in a credit crisis. He has also questioned the inflation targeting system.

According to Campos Neto, market expectations for inflation are very important, and it's crucial to ensure they are anchored. He emphasized that expectations have been worsening for 14 weeks.

Campos Neto added that the country's fiscal situation influences the Central Bank's actions by impacting the expectations channel.