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LATIN AMERICA ADVISOR

LATIN AMERICA ADVISOR

A daily publication Of the dialogue

April 5, 2022

Will Paraguay Be Able to Hold Down Inflation?

Paraguay’s central bank (pictured) last month hiked the country’s benchmark interest rate to a seven-year high. // File Photo: Radio Nacional del Paraguay.

Q

  • Paraguay’s central bank on March 22 increased the country’s benchmark interest rate to 6.25 percent, a seven-year high, in an effort to stem inflation, which is running at its fastest rate in more than a decade. Consumer prices in February increased to 9.3 percent from 7.9 percent the month before, with fuel and foodstuffs representing an estimated 70 percent of the month’s increases. What are the key causes for Paraguay’s rising inflation, and is the central bank taking the right action to fight it? How well is President Mario Abdo Benítez managing the country’s economy, and which of his policies are having the biggest economic impact? What are the major obstacles facing Paraguay’s economy, and what can be done to counter external factors that may be shaping its outlook the rest of the year?

A

Sebastián Acha, president of the World Compliance Organization and executive director of PRO Desarrollo Paraguay: “According to the latest report from the Central Bank of Paraguay, the country will close the year with an inflation rate of 6 percent. These numbers, which seem very optimistic to specialists, cannot hide the highest inflationary escalation in the last 10 years, and currently the fourth highest in Latin America. The central bank’s efforts to raise interest rates are among several measures that the government should take to deal with this phenomenon that—although it affects the entire region—becomes much more sensitive in a country that has become accustomed to low and highly predictable inflationary cycles over the last decade. In addition, this measure in our economy does not have repercussions as in other countries because the transmission of the monetary policy has different characteristics…”

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