The Central Bank of Paraguay took a notably unexpected step on Friday by cutting its benchmark interest rate by 25 basis points, decreasing it from 6% to 5.75%. This adjustment marks the first interest rate reduction since April 2024 and came as a surprise to market analysts who had forecasted no change in the policy rate during recent surveys.
Authorities attributed this move primarily to inflation expectations that have become well grounded and have remained stable, alongside a noticeable slowing of consumer price inflation across the country. These factors have given the central bank confidence to ease monetary policy slightly without compromising its overarching goal of price stability.
Despite the rate cut, the central bank emphasized that its overall policy stance remains neutral. The institution foresees a continued deceleration in inflation in the near term, with projections indicating that inflation will converge to its target level of 3.5% by the end of 2026.
In a statement following the decision, the monetary authority reaffirmed its commitment to maintaining price stability and underscored its intention to vigilantly monitor both domestic and international economic developments. The goal is to anticipate any potential impacts these factors may have on the trajectory of inflation, allowing for timely policy adjustments if necessary.
Regarding economic growth, the central bank kept its forecasts unchanged, maintaining an expected GDP growth rate of 6% for 2025 and 4.2% for 2026. This suggests confidence in the country’s economic resilience despite monetary easing.
The decision reflects a careful balancing act as the central bank seeks to support economic growth while remaining focused on controlling inflation risks. The impact of this policy move will be closely watched by investors and sectors sensitive to interest rate fluctuations, such as banking, lending, and consumer finance.