Paraguay Central Bank Chief Sees 6% Key Rate Cooling Inflation

Inflation in Paraguay has been cooling, providing relief to consumers and businesses alike, as the Central Bank of Paraguay (BCP) maintains its benchmark interest rate at 6%. This rate, which has been held steady since April 2024, is helping to manage inflationary pressures while supporting economic growth.

The BCP's decision to keep the key rate unchanged comes as the annual inflation rate eased to 3.6% in October 2024, down from 4.1% in September. This marks the lowest reading since March and is well below the previous target of 4%. The slowdown in inflation can be attributed to lower price increases in various sectors, including food and non-alcoholic beverages, transportation, restaurants and hotels, furniture, and alcoholic beverages.

The BCP's monetary policy has been successful in managing inflation while also promoting economic growth. The central bank has been lowering interest rates gradually, allowing for a balance between price stability and economic expansion. This approach has been praised by Governor Carlos Carvallo, who sees room for the benchmark interest rate to reach a neutral level of 5.5% to 6% as soon as the first half of 2024.

We are still in contractive territory, but we are closer to neutral monetary policy than the rest of the region and the majority of countries in the world.

Carvallo's predecessor had hiked borrowing costs to an 11-year high of 8.5% as Paraguay grappled with a global price shock. However, after peaking in April 2022, annual inflation eased to 3.2% in November, allowing the BCP to adopt a more accommodative monetary policy stance.

The BCP's strategy of lowering interest rates has also helped to maintain the competitiveness of Paraguayan exports in international markets. A stronger Guaraní currency could make Paraguayan exports more expensive and less attractive. By lowering interest rates, the BCP aims to deter excessive inflows of foreign capital that could appreciate the currency, thereby protecting the agricultural sector's edge in international markets.

We are not dismissing the possibility of either increasing or decreasing rates if necessary to achieve the new 3.5% inflation target.

The BCP's approach to monetary policy has been praised for its data-driven and flexible nature, allowing for adjustments in response to evolving economic conditions. This strategy marks a departure from Paraguay's historical tendency to preemptively hike rates to curb inflation and highlights the importance of tailoring economic policies to a country's specific circumstances.



In conclusion, the Central Bank of Paraguay's decision to maintain the benchmark interest rate at 6% has been effective in managing inflation while supporting economic growth. The BCP's gradual and data-driven approach to monetary policy has allowed for a balance between price stability and currency competitiveness, ensuring that Paraguay's economy remains on a sustainable path. As the BCP continues to monitor economic conditions and adjust its policy accordingly, investors can remain confident in the stability and sustainability of Paraguay's economy.