Paraguay Lifts Benchmark Rate to Two-Year High of 5.25%

(Bloomberg) -- Paraguay’s central bank hiked its benchmark interest rate by 125 basis points for a third straight month to 5.25% with inflation still running at its fastest pace in a decade.

The central bank warned that inflationary pressures from rising food and fuel prices could still spread to the broader economy amid stronger growth and accommodative monetary policy, according to a statement on its website. The benchmark rate is now at its highest level since January 2019. 

Latin American central banks with inflation-targeting regimes such as Mexico, Brazil and Peru are ratcheting up rates to contain surging consumer prices. After peaking at 7.6% in October, Paraguay’s inflation slowed to 7.4% last month with policy makers expecting it to reach 4.5% in the fourth quarter of 2022. The central bank’s inflation target is 4%.  

The pandemic and the climate -- Paraguay is a major global exporter of soy and beef -- are the main risk factors facing the economy in the coming months, the central bank said.

Paraguay Central Bank Sees Growth Slowing to 3.7% in 2022

The central bank is scheduled to hold its first policy meeting of 2022 on Jan. 21.

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