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Paraguay Lifts Key Rate to 4% While Maintaining Hawkish Guidance

Paraguay Lifts Key Rate to 4% While Maintaining Hawkish Guidance

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 Lifts Key Rate to 4% While Maintaining Hawkish Guidance

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.

©2021 Bloomberg L.P.