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 fifth consecutive month, maintaining a neutral stance. The decision was in line with our expectations and market consensus.

The Committee highlighted that economic activity has performed better than expected during the first five months of the year. In this context, the BCP revised its 2026 GDP growth forecast upward to 4.5% from 4.2% in the latest Monetary Policy Report (IPoM). On the other hand, the 2026 inflation forecast was revised down to 3.3% from 3.5%, mainly due to lower-than-expected inflation in non-energy goods, particularly non-food items.

On the external front, the Committee emphasized the recent sharp increase in oil prices amid renewed geopolitical tensions in the Middle East. In addition, markets continue to anticipate further Federal Reserve policy rate hikes in the coming months, which could lead to tighter global financial conditions.

Against this backdrop, the BCP decided to keep the policy rate unchanged at 5.50%, consistent with a neutral monetary policy stance. Following today’s decision, we estimate that the one-year ex-ante real policy rate remains at 2.0%, comfortably within the central bank’s estimated neutral range of 1.3%-2.6%.

As usual, the Committee reiterated that it will continue to closely monitor external risks and assess their implications for the inflation outlook, adopting any measures necessary to ensure convergence to the target within the monetary policy horizon.

Our view: We expect the policy rate to remain on hold at 5.50% through the remainder of 2026. While inflation remains below target and core price pressures are subdued, external uncertainty has increased amid higher oil prices and the prospect of tighter global financial conditions. On balance, we believe these factors support the BCP’s decision to maintain a neutral stance and reinforce our baseline scenario of an extended pause. The next monetary policy meeting is scheduled for August 25.