Tuesday, December 20, 2016

Paraguay maintains rate, says outlook remains uncertain

    Paraguay's central bank left its monetary policy rate at 5.50 percent, saying recent changes in international financial markets had not had any substantial effect on the country or region but the outlook remains uncertain.
    The Central Bank of Paraguay (BCP) has changed its rate three times this year for a net reduction of 25 basis points following a rate hike in January and then two cuts in May and July.
    The central bank said inflation was consistent with its midpoint target of 4.5 percent but there was a moderation in economic activity.
     Paraguay's inflation rate rose to 4.2 percent in November from 3.6 percent in October while the economy grew by an annual rate of 5.0 percent in the the third quarter, down from 6.2 percent in the second quarter.
    The exchange rate of Paraguay's guarani started depreciating in September 2014 and lost 20 percent against the U.S. dollar in 2015 before hitting a low of 5,967 to the dollar in January.
    Following the central bank's rate hike on Jan. 20, the guarani rebounded but since mid-October it has continued to depreciate and was trading at 5,814.6 to the dollar today, down 0.6 percent this year.
    Earlier this month Fitch Ratings affirmed Paraguay's sovereign rating as BB with a stable outlook, saying the economy was becoming resilient to external shocks given the adequate level of international reserves, increased exchange rate flexibility and improved credibility of monetary policy.
    Fitch estimated growth this year of 4.0 percent despite low prices of key exports (soya and beef) and the recession in its main trading partners of Brazil and Argentina.
    For 2017 Fitch forecast growth of 3.5 percent and for 2018 3.8 percent, driven by domestic demand.
    Inflation is 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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