RIO DE JANEIRO, BRAZIL – Paraguay is the latest Latin American country to raise its key interest rate, as rising food and fuel prices push inflation above target.
On Monday, August 23, the Central Bank raised its key rate by a quarter percentage point to 1 percent after leaving it unchanged at 0.75 percent since July 2020.
It said the improving economy and the risk that rising consumer prices could affect inflation expectations warranted the start of a “gradual” tightening cycle. “Nevertheless, the current monetary policy profile remains very expansionary and will continue to support the economic recovery,” the Central Bank said in a statement.
Paraguay joined other countries in the region, including Brazil, Mexico, Chile, and Uruguay, raising interest rates to contain consumer price increases as their economies rebound. In July, inflation remained above the Central Bank’s target of 4% for the second month in a row, and the consumer price index accelerated to 5.2%.
The same food prices fuel inflation are also boosting economic activity, as Paraguay is one of the top ten exporters of soybeans and beef. After posting one of the mildest recessions in the region last year, the Central Bank raised its 2021 growth forecast to 4.5% from 3.5% last month.
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