Paraguay’s central bank raises key interest rate to 11-year high

Paraguay’s central bank raised its key interest rate to 8.50%, its highest level in 11 years. The decision surprised analysts who had expected the bank to maintain the rate.

Officials unanimously raised the rate by a quarter percentage point for the third consecutive month.

According to a press release, months of rising consumer prices have pushed inflation expectations above the bank’s target.

Policymakers also pointed out that they expect consumer price increases to slow in the coming months.

“An expected reduction in electricity tariffs between September and December should contribute to lower annual inflation rates by the end of the year,” the central bank said in its statement.

Paraguay and its Latin American peers continue to raise borrowing costs to prevent food and energy inflation from spreading to other goods and services.

After reaching a 14-year high of 11.8 percent in April, consumer price inflation slowed to an annual rate of 10.5 percent last month.

Justifying their caution in tightening monetary policy Thursday, policymakers noted in their statement that inflation expectations for the monetary policy horizon have stabilized but are still above the 4 percent target at 4.5 percent.

The central bank expects inflation to reach the target in early 2024.

With information from Bloomberg in linea

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