You are conflating backward-looking inflation (money has gotten 10 percent less valuable over the past year) with forward-looking inflation (we should lend at 1

You are conflating backward-looking inflation (money has gotten 10 percent less valuable over the past year) with forward-looking inflation (we should lend at 12 percent interest because we expect money to get 10 percent less valuable over the next year). The former doesn't guarantee the latter; the latter is unlikely and gets unlikelier the more interest rates ratchet upward. That's why they are incremented - at a certain point inflation will inevitably reverse, and that point is likely below 12%, so going to 12% would unnecessarily knife the economy.