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Paraguay is the latest Latin American country to boost its benchmark interest rate with its first hike in more than five years Monday, as rising food and fuel prices push inflation above target.
Policy makers lifted the key rate by a quarter of a percentage point to 1% after keeping it unchanged at 0.75% since July 2020.
An improving economy and the risk that rising consumer prices might affect inflation expectations merited the start of a “gradual” tightening cycle.
“Nonetheless, the current stance of monetary policy remains highly expansive and will continue to support the economic recovery,” the central bank said in a statement.
Paraguay joins regional peers including Brazil, Mexico, Chile and Uruguay in lifting interest rates to contain rising consumer prices as their economies reopen. Inflation held above the central bank's 4% target for a second straight month in July, with the consumer price index increasing 5.2%.
Why Inflation Is Scaring Latin America If Not the Fed: QuickTake
The same food prices stoking inflation are also seen goosing economic activity thanks to Paraguay's ranking as a top-10 exporter of soy and beef. After reporting 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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