Paraguay Central Bank Cuts Key Rate to 0.75% to Aid Economy

(Bloomberg) -- Paraguay’s central bank cut its benchmark interest rate by 50 basis points to 0.75% as below-target inflation allows it to adopt looser monetary policy to aid the economy.

Inflationary pressures are expected to be contained in coming months due to weak domestic demand and expectations of further deterioration in the economies of Paraguay’s main trading partners, the bank said in a statement published on its website. The annual inflation rate fell to 0.7% in May, the lowest in more than two decades. The central bank targets inflation of 4%.

Policy makers have cut the bank’s key rate 325 basis points this year as the economy likely plunged into a recession after the government implemented a strict lockdown in March to slow the spread of Covid-19. The bank expects gross domestic product will shrink 2.5% in 2020.

The sharp drop in economic activity observed in April probably moderated in May, the bank said.

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