Paraguay central bank cuts rates as inflation runs below target
The Central Bank of Paraguay (BCP) reported January inflation at 0.6%, with annual inflation easing to 2.7%—below the 3.5% target
Paraguay’s central bank chief Carlos Carvallo says the country is dealing with a “nice problem”: inflation is converging to the official goal “from below,” an unusual pattern in the region that has prompted policymakers to start trimming interest rates to prevent price growth from staying too low.
The Central Bank of Paraguay (BCP) reported January inflation at 0.6%, with annual inflation easing to 2.7%—below the 3.5% target for a second straight month.
In an interview in Asunción cited by financial media, Carvallo said his baseline is for inflation to remain under target through the first half of the year and return to 3.5% toward year-end, supported by the lagged effects of monetary policy and more favourable year-on-year comparisons. “We are in a rather unusual situation in which inflation will converge to the target from below… it is, in any case, a nice problem,” he said.
The BCP has already lowered its policy rate twice in 2026, delivering back-to-back 25-basis-point cuts to 5.5%. In the statement accompanying the latest move, the Monetary Policy Committee said the stance remains “neutral.” Carvallo echoed that view, saying policymakers want to preserve room to adjust rates and steer inflation back to target: “We are within the neutrality range.”
A stronger guaraní has also helped contain inflation. Market data show the currency up around 18% year-on-year in early March. Carvallo linked the move to global and regional dynamics and said he does not see an appreciation that distorts the economy or significantly damages competitiveness.
The trade-off is the risk that prolonged currency strength erodes export competitiveness, and that inflation running too low could eventually weigh on growth.
The BCP estimates the economy expanded about 6% in 2025 and forecasts 4.2% growth in 2026, driven by services, manufacturing and construction, as authorities point to stronger macro stability. Paraguay has also secured investment-grade ratings from Moody’s (Baa3) and S&P (BBB-), a milestone as the country seeks to broaden its investor base.
