MercoPress. South Atlantic News Agency

Paraguay's Central Bank keeps interest rates at 0.75%; eyes 4% yearly inflation

International conditions are fvorable to Paraguay's growth, the BCP has reported

After a study through which it was determined that international factors remained favourable. Paraguay's Central Bank (BCP) Friday announced that its Monetary Policy Committee (CPM) unanimously decided to maintain the monetary policy interest rate at 0.75% annually.

According to a BCP report, the CPM sees that prospects for economic growth of the country's main trading partners remain favourable, while short-term global indicators for the manufacturing and services sector show a better rate of expansion, both in advanced and emerging economies.

International financial markets showed a temporary increase in volatility in the main stock exchanges of advanced economies, after the release of inflation data in the United States that exceeded market expectations, the BCP report stated.

Regarding the evolution of the pandemic, disparities between countries continue to be observed in terms of progress in vaccinations against covid-19, as well as in the levels of infections.

In various countries of the region, there is a deepening of the health crisis, which constitutes a risk to their economic prospects. On the other hand, inflationary pressures persist in neighbouring countries and various measures have been observed to contain them, the BCP document went on.

Domestically, economic activity and demand indicators for March have shown a good performance, even isolating the base effect when comparing with the same month of the previous year, with good dynamics observed in construction, manufacturing and trade.

However, the high rate of covid-19 infections remains the main risk, particularly for the services sector. Faster progress in the population immunization process, while mitigating the human costs of the disease, would contribute to a more solid and homogeneous economic recovery process among the different economic sectors, according to the BCP.

Regarding inflation, the price of food has increased in recent months, boosted by the rise in international commodity prices and larger demand. Despite that, overall inflation has remained contained due to lower growth in the prices of services.

In addition to that, the year-on-year inflation is expected to register a temporary rebound in the following months, mainly due to a lower base of comparison effect, but it would fall again towards the end of the year and would remain around the government's target of 4%.

In this scenario, the CPM has deemed the current expansionary profile of the monetary policy compatible with that goal, although it has vowed to closely monitor new international and local developments to assess the implications on economic activity and inflation prospects.