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Paraguay central bank raises key interest rate 125 bps to 4.0%

11/22/2021 | 05:44pm EST

ASUNCION, Nov 22 (Reuters) - The Central Bank of Paraguay raised its monetary policy interest rate by 125 basis points to 4.0% on Monday, hiking the key rate for the second consecutive month in an attempt to curb inflation as the economy recovers from last year's COVID-19 lockdown.

The bank's Monetary Policy Committee unanimously decided to increase the rate, it said in a statement, noting what has been an increase in food and energy prices.

"The rise in inflation is explained, to a large extent, by the increase in the prices of food and energy commodities in international markets. Additionally, the greater external demand for beef has put additional pressure on local prices", it said.

Paraguay, like neighboring Argentina, is a beef exporter.

"Given the better economic outlook, the second-round effects of these initial shocks may negatively influence medium-term inflation expectations," the bank said in the statement.

Paraguay is forecasting economic growth of 4.5% this year from a 0.6% contraction in 2020. The 12-month inflation rate as of October was 7.6%, well above the 4.0% target rate.

The central banks of Brazil, Chile and Peru have also tightened their monetary policy this year as economic activity recovers from the coronavirus pandemic and inflation accelerates. (Reporting by Daniela Desantis; Writing by Hugh Bronstein; Editing by Sandra Maler)


ę Reuters 2021
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