Paraguay’s central bank opted to maintain its benchmark interest rate at 5.5% on Friday, keeping monetary policy on a neutral setting as consumer prices remain beneath the official inflation target and economic growth shows signs of deceleration.
The Monetary Policy Committee’s decision followed two quarter-point reductions earlier this year since January, and it was broadly anticipated by analysts. The bank’s formal inflation aim is 3.5%, with an allowable deviation of plus or minus two percentage points.
On the inflation front, year-on-year consumer inflation was recorded at 2.3% in February, while core inflation - which strips out volatile items - stood at 2.1% for the same month. Monthly inflation registered 0% in February, a balance that reflected higher costs in education services and vegetables offset by declines in food and fuel prices.
Recent activity indicators show a modest expansion in output. Paraguay’s Monthly Indicator of Economic Activity rose 0.9% year-on-year in January, backed by positive performances in the agriculture, electricity and water, and services sectors. The Business Figures Estimator also edged up, increasing 0.2% year-on-year for the same period. The central bank noted that economic activity continued to grow in January, but that the pace was slower year-on-year due to a higher base of comparison.
The committee highlighted external risks, specifically noting that international energy prices have climbed above $100 per barrel amid escalating conflict in the Middle East. It said it will continue to monitor these international energy developments alongside domestic conditions to assess potential implications for inflation.
Officials emphasized their readiness to act if new information suggests the inflation outlook requires a response, saying they will follow domestic and external developments closely to take timely measures that help meet the 3.5% inflation target. The next Monetary Policy Committee meeting is scheduled for April 21, 2026.
Context and implications
- The central bank’s pause maintains current borrowing costs after earlier easing this year.
- Inflation metrics remain comfortably inside the bank’s tolerance band, supporting the neutral stance.
- Policymakers flagged energy price developments as an external factor that could influence future decisions.