Paraguay Holds Rate, Virus Seen as New Uncertainty

"Paraguay" / amslerPIX / Flickr / July 25, 2007 / CC BY-NC 2.0

Photo: “Paraguay” / amslerPIX / Flickr / July 25, 2007 / CC BY-NC 2.0

This article was originally published on CentralBankNews.info on February 24, 2020. It is reproduced here with permission from the author.

Paraguay’s central bank left its monetary policy rate steady at 4.0 percent, saying the data shows the country’s economy is expected to continue along the path of recovery in the first months of the year though the outbreak of the coronavirus in China “has become a new factor of uncertainty.”

The Central Bank of Paraguay (BCP), which has kept its rate steady since October 2019 after five rate cuts in the preceding months by a total of 125 basis points, added the outbreak has not only led to the temporary closure of some factories in China, lowering production, but the outlook for the local region “has become more complex” considering the challenge of renegotiating debt in Argentina.

On the other hand, economic data from Brazil remains favorable while a greater depreciation of the real has been noted.

“In this scenario, CPM (the monetary policy committee) considers that maintaining the current accommodative profile continues to be compatible with the fulfillment of the medium term inflation target,” the central bank said.

Paraguay’s economy was hit hard by several shocks last year, including drought and then flooding which cut agricultural output, and then weakness in Argentina and Brazil, which lowered exports.

In the third quarter of 2019 Paraguay’s economy bounced back from two consecutive quarters of annual contraction in the first and second quarters of 2019, with gross domestic product expanding by 2.8 percent year-on-year.

Inflation in Paraguay was steady at 2.8 percent in January and December and BCP expects inflation to gradually converge to its target of 4.0 percent, plus/minus 2 percentage points, in the medium term.

This article was originally published on CentralBankNews.info on February 24, 2020. It is reproduced here with permission from the author.

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