Paraguay's central bank maintained its monetary policy rate at 5.50 percent for the seventh consecutive month, saying the risk to domestic inflation from abroad had eased temporarily in light of the recent depreciation of the U.S. dollar at the global level.
The Central Bank of Paraguay (BCP) changed its rate three times in 2016 for a net reduction of 25 basis points following a rate hike in January and then two cuts in May and July.
In its statement, the central bank also said the prospects for countries in the region had weakened while there is uncertainty over the policies that will be implemented by the new U.S. administration.
However, economic activity in Paraguay is still favorable and the trajectory of inflation and inflation expectations remain in line with its goal.
The BCP's midpoint inflation target is 4.5 percent and in December inflation declined to 3.9
Paraguay's economy expanded by 5.0 percent year-on-year in the third quarter of last year, down from 6.2 percent in the second quarter.
The exchange rate of Paraguay's guarani lost 20 percent against the U.S. dollar in 2015 before hitting a low of 5,967 to the dollar in January 2016.
Following the central bank's rate hike on Jan. 20 last year the guarani rebounded but then eased from mid-October until early December.
Since then it has firmed slightly and was trading at 5,752 to the U.S. dollar today, up from 5,826 at the start of 2017.
Last month Fitch Ratings affirmed Paraguay's sovereign rating as BB with a stable outlook and forecast 2017 growth of 3.5 percent and 3.8 percent for 2018 after 4.0 percent in 2016.
Inflation in 2016 was expected to average 3.6 percent this year, with Fitch saying the central bank's credibility has risen since it introduced an inflation targeting regime in 2011.
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