PARAGUAY – BCP on hold again at 5.50%, as expected

At today’s monthly Monetary Policy meeting, the BCP unanimously left the policy rate at 5.50% for the fourth consecutive month, maintaining a neutral stance. The decision was in line with our expectations and market consensus.

The Committee highlighted that high-frequency indicators continue to signal solid economic momentum, consistent with the central bank’s 2026 GDP growth forecast of 4.2%. On inflation, monthly readings this year have been largely driven by volatile components—notably fuels and selected food items—partly offset by softer dynamics in other segments. Inflation expectations remain well anchored at 3.5% across both the 12-month and policy horizons. Against this backdrop, headline inflation is expected to remain below target in the near term, supported by contained core pressures. Following today’s decision, we estimate that the one-year ex-ante real policy rate remains at 2.0%, comfortably within the BCP’s estimated neutral range of 1.3%–2.6%.

On the external front, the Committee noted ongoing uncertainty despite some near-term relief in geopolitical tensions. International oil prices have recently declined—falling below USD 80/bbl amid a temporary US–Iran agreement—but uncertainty remains elevated. Markets also continue to price in the risk of further Fed tightening, which could tighten global financial conditions.

As usual, the BCP reiterated its data-dependent approach, closely monitoring external risks and their potential impact on inflation dynamics to ensure convergence to target within the policy horizon.

Our view: We expect the policy rate to remain on hold at 5.50% through the remainder of 2026. While recent declines in international oil prices provide some relief to the inflation outlook, external uncertainty remains elevated and risks are still tilted to the upside, particularly if global financial conditions tighten further. Nevertheless, subdued core inflation dynamics support our baseline scenario of an extended pause. The next monetary policy meeting is scheduled for July 23.