Paraguay’s Central Bank Lowers Rate by 25bps Amid Soft Inflation

Paraguay Extends Easing Cycle with Unexpected Rate Cut

Paraguay’s Central Bank surprised markets by cutting its benchmark interest rate by 25 basis points in January 2026, lowering the key policy rate to 5.75% after a long period at 6%. This marked the first rate reduction since April 2024 and signaled confidence in slowing inflation and solid economic growth.

Monetary authorities pointed to well-anchored inflation expectations and decelerating consumer price increases as primary drivers for the decision. Despite moving toward easier monetary conditions, the central bank maintained that the overall policy stance remains neutral, reinforcing its commitment to long-term price stability. Many analysts had previously predicted that rates would remain unchanged.

Inflation Trends and Policy Objectives

Inflation in Paraguay continues to moderate, with annual consumer prices ending 2025 at approximately 3.1%, one of the lowest readings in recent years. The central bank expects inflation to continue tapering toward its target of 3.5% by the end of 2026.

The Monetary Policy Committee stressed that careful monitoring of both domestic and global economic developments will guide future rate decisions, reflecting a balanced strategy to uphold price stability.

Economic Context and Outlook

The rate cut also reflects confidence in Paraguay’s economic resilience. Strong growth of over 6% in 2025 and expectations of more than 4% growth in 2026 provide a supportive backdrop for monetary easing. The more accommodative policy framework aims to bolster investment and domestic demand while inflation remains subdued.

As reported by experts at International Investment, Paraguay’s decision to lower its policy rate within an ongoing easing cycle underscores sustained inflation moderation and favorable macroeconomic dynamics, potentially reinforcing economic stability and investment prospects in 2026.