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Paraguay raises rate 2nd time to meet inflation target

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     Paraguay’s central bank raised its benchmark interest rate for the second consecutive month, saying it considers it appropriate to continue normalizing monetary policy to ensure it meets its inflation target in the medium term.
     Although the Central Bank of Paraguay (BCP) said the acceleration in inflation is mainly due to external factors, it added the risk of a misalignment of inflation expectations and second-round effects may become more relevant during an improving economy and a better outlook for public health.
     BCP raised its monetary policy rate by 50 basis points to 1.50 percent and has now raised it 75 points following an earlier hike in August, the central bank’s first rate hike in 5-1/2 years.
     Inflation in the land-locked South American country accelerated for the fourth month to 5.6 percent in August from 5.2 percent in July and 2.6 percent in January, above BCP’s target of 4.0 percent.
    “Inflation has picked up in recent months, above what was previously expected, which is largely explained by the impact of high international commodity prices and higher external demand for beef,” BCP’s monetary policy committee said on Sept. 21.
     Internationally, the growth prospects for Paraguay’s main trading partners has continued to improve and domestic economic activity has continued to expand from last year, especially services, manufacturing and livestock, the bank said.
     A reduction in infections, progress in rolling our COVID-19 vaccinations and greater mobility may continue to lead to better consumer expectations and aid the recovery of those parts of the service sector that was most hard hit by the pandemic, BCP added.
     Paraguay’s gross domestic product grew 0.6 percent year-on-year in the first quarter of this year, down from 1.0 percent growth in the fourth quarter of 2020.


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