Paraguay Lifts Key Rate to 4% While Maintaining Hawkish Guidance

(Bloomberg) -- Paraguay’s central bank tightened monetary policy by 125 basis points for a second consecutive month, lifting its benchmark interest rate to 4% as it seeks to prevent the fastest inflation in a decade from spilling over into the broader economy.

The central bank also reaffirmed its previously announced guidance that it will implement a similar hike in December, according to a statement on its website. That would put the key rate at its highest level since January 2019. 

Paraguay is the latest Latin American country to raise borrowing costs to slow accelerating consumer prices. Inflation jumped to 7.6% in October from 6.4% the previous month due to higher prices for food and imported fuel. The central bank’s target is 4%. 

The central bank warned that rising consumer prices and an improving economy could lead to “relevant” second-round effects on other prices and negatively influence medium-term inflation expectations. Inflationary pressures might also get a fiscal boost if lawmakers approve an “unsustainable” budget, the monetary authority said. 

The central bank is scheduled to publish its last policy statement of the year on Dec. 21 at 3:00 p.m. local time.

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