Asunción, Agencia IP.- The Monetary Policy Committee (MPC) of the Central Bank of Paraguay (BCP) unanimously decided to reduce the monetary policy interest rate (MPIR) by 25 basis points (bp) from 6.75% to 6.50% annually.
In their decision, the MPC evaluated the following relevant aspects:
International context
Geopolitical tensions in the Middle East have recently intensified, causing disruptions in crucial trade routes for global commerce. This has resulted in increased costs of maritime transportation and delayed delivery of goods.
Although the price of oil remained below $80 per barrel, uncertainty regarding its future evolution has heightened, and as for agricultural commodities, soybean, corn, and wheat prices decreased in the last month, mainly due to favorable supply prospects.
In the United States, employment creation and inflation measured by the CPI exceeded expectations in December. However, the inflation rate estimated by the PPI was lower than expected by the market. The probability of the Federal Reserve’s interest rate cut starting in March has moderated, reflected in a slight increase in long-term bond yields and the dollar’s value.
Local context
The Imaep recorded a year-on-year variation of 1.6% in November (5.1% in accumulated terms), driven by positive results in services, manufacturing, and livestock, while construction and agriculture tempered the growth of the aggregate indicator.
The ECN grew by 7.2% year-on-year, fueled by higher sales of household equipment, fuels, and chemical-pharmaceutical products, among other sectors. The Consumer Confidence Index (CCI) increased in December, reaching 57.5.
In the last month of the year, monthly inflation was 0.3%, while the year-on-year inflation stood at 3.7%, slightly below the previous projection for the close of 2023 (3.8%). Monthly increases in certain foods (beef and volatile items) influenced the result, partly offset by the reduction in fuel prices.
The inflation of the Consumer Price Index, excluding Food and Energy (CPIE), stood at 0.2% monthly and 4.0% year-on-year. They have remained in line with the 4.0% target for all consulted horizons regarding inflation expectations.
Overall assessment
Domestic macroeconomic variables have continued to evolve as expected. Externally, uncertainty persists regarding the impact of geopolitical tensions on maritime transportation costs and oil prices, as well as the initiation of the Federal Reserve’s interest rate adjustment cycle.
Regarding the domestic MPIR, it is noteworthy that, after the recent decisions, it is close to the neutral range. In this context, the Committee decided to continue the normalization process of the reference rate, reducing it by 25 bp.
The MPC reaffirms its commitment to price stability. It will closely monitor the latest local and external developments to anticipate their possible repercussions on the inflation trajectory. It will take appropriate measures to fulfill the 4% target in the monetary policy horizon.
The next MPC meeting will occur on February 19, 2024, and the respective statement will be published at 3:00 PM on the same day.