Monday, August 24, 2020

Paraguay maintains rate for 2nd month to aid recovery

     Paraguay's central bank left its policy rate steady for the second month, saying an accommodative monetary policy is appropriate to provide further momentum for a recovery of domestic demand and ensure inflation converges to its 4.0 percent target.
     The Central Bank of Paraguay (BCP) has cut its policy rate five times this year by a total of 325 basis points, most recently in June, but has kept its steady at 0.75 percent since July.
     While short-term economic data on the international front have some some improvement after significant falls earlier, the situation in South America continues to be "complex," the bank said, adding this is the reason for a poor economic outlook.
     Domestic economic activity showed a good performance in June, helped by an improvement in manufacturing, construction and livestock but there is a downward risk to economic activity and demand in coming months due to an increase in the rate of COVID-19 contagion.
      Paraguay's gross domestic product grew an unchanged 3.5 percent year-on-year in the first quarter of this year while inflation rose to 1.1 percent in July from 0.5 percent in June.
      Last month BCP forecast the country's economy could shrink 3.5 percent this year, up from an earlier forecast of a 2.5 percent contraction.

     The Central Bank of Paraguay released the following statement:

"At its last meeting, the Monetary Policy Committee (CPM) has unanimously decided to maintain the monetary policy interest rate at 0.75% annually. 
The CPM observes that, at the international level, the short-term indicators of the advanced economies have shown some improvement, after the significant falls registered in the most severe period of the Covid-19 pandemic in those countries. The announcements about progress in the development of both treatment and vaccines have favored the behavior of stock markets, although a high level of uncertainty persists. As regards the region, the epidemiological situation continues complex, whereby the economic outlook remains deteriorated. 
At the domestic level, economic activity indicators registered a positive performance in June, driven by the improvement of the manufacturing, construction, and livestock sub-sectors, and by the lower drop reported in the tertiary sector. Notwithstanding, the increase in the pace of Covid-19 contagion and the extension of the established social quarantine measures, represent a downward risk for economic activity and demand in the coming months. As regards prices, total inflation and the underlying measures have shown a rebound at the margin, although they remain at low levels. 
In this context, the CPM deems it appropriate to maintain the current accommodative monetary policy stance to continue to support the gradual recovery of domestic demand, assuring the gradual convergence of inflation to the target of 4.0% annually over the monetary policy horizon. Finally, the Committee reaffirms that it will continue to carefully evaluate the new local and international data and information, in order to determine the next steps in monetary policy."



Post a Comment