(Bloomberg) -- Brazil’s central bank is very concerned about inflation estimates that remain “way above” their goal and will do what is necessary to bring cost-of-living increases to target, International Affairs Director Paulo Picchetti said Wednesday.

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Speaking at an event in Washington, Picchetti said that while inflation has been decelerating, it has stabilized above the bank’s 3% target as fiscal stimulus drives Brazil’s surprisingly strong economic activity.

“We’ve had partial success because inflation has clearly been decelerating, but it has not continued to decelerate toward the target,” Picchetti said, adding that policymakers are “carefully observing” economic and fiscal developments amid mounting worries about public spending.

Alongside rising US Treasury yields, the comments contributed to an increase in Brazilian swap rates as traders assessed them as more hawkish toward monetary policy. Traders currently bet that the benchmark Selic will hit 13.5% by the middle of next year.

Annual inflation hit 4.42% in September, nearing the ceiling of the bank’s tolerance range as food and energy prices soared. Core measures stripping out volatile items are also “way above” goal, as are services costs and gauges of implied inflation, Picchetti said.

Central bankers led by Roberto Campos Neto hiked interest rates to 10.75% in September, just months after they halted an easing cycle. But Latin America’s largest economy has shown resilience to high interest rates, surprising policymakers and political leaders alike.

President Luiz Inacio Lula da Silva’s policies aimed at improving living standards are boosting family consumption, while a tight labor market is increasing disposable income for Brazilian households.

The government’s expansionary fiscal policy has generated alarm both among investors and central bankers who have increasingly expressed concerns about the effects of increased spending. Fiscal fears have weighed on Brazilian assets, including the real, which ranks among the world’s worst-performing emerging market currencies this year.

“A focused and hawkish signal from the central bank helps support the currency, but the solution to market anxiety is first and foremost still elusive structural fiscal measures,” said Alberto Ramos, chief Latin America economist at Goldman Sachs.