Paraguay Cuts Rate Third Time, Data Determines Next Move

This article originally appeared on CentralBankNews.info on July 22, 2019. It is reproduced here with permission from the author.

Paraguay’s central bank lowered its policy rate for the third time this year, saying there is a space to give the economy a monetary boost as inflation is still expected to converge toward the bank’s 4.0 percent target.

The Central Bank of Paraguay (BCP) cut its key rate by another 25 basis points to 4.50 percent and has now lowered it by a total of 75 points this year following earlier cuts in February and March.    

In April, May and June the rate was kept steady and BCP said the next monetary policy decision would depend on the evolution of both domestic and external macroeconomic data.

“The economy remains weak, both on the activity and demand side,” the central bank said, adding some progress around reforms has been seen on the regional level, which has also helped strengthen the exchange rates of those countries.

However, there is a still uncertainty on the international level from the trade conflict between the U.S. and China although the economies of the main advanced economics and emerging economies are still growing at moderate rates, helped by more lax monetary policy.

Inflation in Paraguay has remained below the target for several months and inflationary pressures remain limited, which could affect the convergence of inflation to the target, BCP said.

Paraguay’s inflation rate eased to 2.8 percent in June from 3.8 percent in May, below 2018’s average rate of 3.6 percent and the 4.0 percent target, while the economy shrank 0.9 percent in the first quarter of 2019 from the fourth quarter of 2018 for an annual drop of 2.0 percent.

In May the International Monetary Fund forecast growth this year of 3.5 percent, down from 3.7 percent in 2018, with risks tilted to the downside, mainly from weaker-than-expected growth in Argentina and Brazil, weather-related shocks and delays in public investment.

This article originally appeared on CentralBankNews.info on July 22, 2019. It is reproduced here with permission from the author.



Categories: Monetary Policy, News, Paraguay

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