Paraguay makes 12th consecutive rate hike

The Central Bank of Paraguay raised its benchmark rate by 25 basis points to 8% at its monetary policy meeting on July 22.

The move is the twelfth consecutive increase, but marks a moderate softening of policy after four 50bp hikes between March and June. In total, the central bank has raised the monetary policy rate by 725bp since last August, from a pandemic low of 0.75%. In its press statement, the central bank’s monetary policy committee said that the headline inflation rate stood at 11.5% in June.

This is a slight decline from its May figure of 11.8%, though well above the 4% inflation target. Inflation expectations for 2022 and 2023 inched upwards, though they remained stable at 4.5% in 2024.

Paraguay has been suffering from a prolonged drought, and the central bank announced debt-relief measures for the agricultural sector in January.

The central bank forecast only 0.2% growth in April, while Fitch, the ratings agency, predicted the economy would shrink by 1% this year in a March report. Fitch cited a drought-induced collapse in soy harvests and declines in hydroelectric production.

At the international level, central bank officials noted that the Federal Reserve and European Central Bank had recently increased their headline rates. “The prolongation of the conflict between Russia and Ukraine continue to represent an upside risk factor for the prices of primary products”, the MPC said.

The central bank’s five-member board of directors formally controls monetary policy, but a monetary policy committee meets each month to evaluate economic conditions. The MPC, which includes several central bank senior officials, unanimously recommended the July 22 increase.