Paraguay's central bank raised its monetary policy rate by 25 basis points to 6.0 percent, citing persistent core inflation and the need for a less expansive monetary policy to ensure that inflation converges to its 4.50 percent target.
The Central Bank of Paraguay, which has held its rate steady since July 2015 after cutting it by a total of 100 basis points in the preceding months, added that it was acting in a timely manner to avoid a deterioration of inflation expectations.
Paraguay's headline inflation rate rose to 3.1 percent in December from 2.9 percent in the previous month while core inflation rose to a 2015-high of 4.4 percent from 4.2 percent.
The central bank targets inflation at a midpoint of 4.5 percent, plus/minus 2 percentage points.
The exchange rate of Paraguay's guarani has been depreciating since September 2014 and fell by 20 percent against the U.S. dollar last year. Today it was quoted at 5,918 to the dollar, down 2.3 percent since the beginning of 2016.
While the central bank noted a lower rate of economic growth, it added that its primary function was to control inflation.
Paraguay's Gross Domestic Product expanded by 1.7 percent in the third quarter from the second quarter for annual growth of 2.0 percent, down from 2.2 percent.
This year the central bank has forecasts growth of 3.2 percent.