Paraguay Central Bank Aims for 3.5% Inflation Target with 6% Key Interest Rate, Reports Bloomberg

Investing.com -- The Central Bank of Paraguay predicts that the current benchmark interest rate of 6% will reduce price increases to its new target by mid-2026. This information was shared according to a report based on an interview with the bank's President Carlos Carvallo on Friday.

Carvallo stated in an interview that he does not rule out the possibility of raising or lowering interest rates if necessary to achieve the new inflation target of 3.5%. The Central Bank anticipates a price increase of 3.7% next year, slightly above this year's rate.

Carvallo believes that the current monetary policy interest rate is at a level that will guide inflation towards the Central Bank's new target. Since April, borrowing costs have remained stable, while inflation has been recorded above the previous target of 4% for 20 consecutive months.

Despite not anticipating urgent policy changes, analysts surveyed by the central bank this month predict that board members will reduce interest rates by half a percentage point to 5.5% next year.

The Paraguayan government has committed to reducing the estimated fiscal deficit of 2.6% of GDP for this year to 1.5% by 2026.

The central bank forecasts that next year's growth will slightly decline to 3.8% from the estimated 4% for 2024. Carvallo noted that this forecast considers the adverse impacts of the depreciation of the real on trade with Brazil and the expected recovery of the Argentine economy in 2025.