By Marcela Ayres

BRASILIA (Reuters), Brazil’s central bank claimed Tuesday that it has not increased interest rates to affect inflation and activity. But, the central bank noted that worsening inflationary circumstances justified an extension of its aggressive monetary policies cycle.

The minutes from the May 3-4 meeting of Copom, where the benchmark rate was raised to 12.75% by the rate-setting commission, were taken. Policymakers stressed that this current cycle is “very intense” and “very timely”, and “much of its expected contractionary effect as well as its impact on current inflation” remain to be seen.

The central bank did not deny that the long-term inflationary dynamics as well as the projections for the future were worsening. This opens the door to a possible extension of the cycle with a lower adjustment in June.

The central bank stated that this strategy is more suitable to assure the convergence of inflation over a relevant projection horizon as well as anchoring longer-term inflation expects.

After raising rates 100 basis points, policymakers last week suggested a lower rate hike next month. This was despite double-digit inflation in the face of rising prices and expectations that they will drift further beyond official targets.

Brazilian inflation reached 12 percent in the 12-month period to April due to an increase in commodities prices and disruptions in supply chains that were caused by war in Ukraine. Petrobras, a state oil company, announced that diesel prices would rise by 8.9% on Monday.

The minutes showed that the central bank stated that shocks have caused a significant increase in the components of food and fuels. However, it also noted the impact of the higher gasoline prices, which had a greater and more rapid effect than anticipated.

According to the report, economic growth was consistent with the expectations of its authors. However, tighter financial conditions are threatening to cause a more severe than expected slowdown in quarters future.