Paraguay breaks rate cutting cycle, citing Fed, oil price risk

Paraguay's central bank on Monday decided to hold its benchmark interest rate at 6%, pausing a monthly rate-cutting cycle that had been in place since August amid uncertainties over U.S. monetary policy and tensions in the Middle East.

Paraguay's central bank on Monday decided to hold its benchmark interest rate at 6%, pausing a monthly rate-cutting cycle that had been in place since August amid uncertainties over U.S. monetary policy and tensions in the Middle East. The South American country's central bank, which reduced borrowing costs by a total 250 basis points during its easing cycle, said that although local conditions remained in line with its expectations, global uncertainties have increased.

The bank mentioned doubts over when the U.S. Federal Reserve will start cutting interest rates and oil price developments as tensions escalate in the Middle East as key reasons behind its latest decision. Emerging market currencies and stocks slumped in recent days as the dollar soared on rising geopolitical tensions and fading hopes of a rate cut by the Fed after stronger-than-expected employment and inflation data in the world's No.1 economy.

"In this context, and taking into account that the current benchmark rate is around the neutral level, the monetary policy committee decided to hold the reference rate at 6%," the central bank said in a statement. Annual headline inflation in Paraguay stood at 3.6% last month, below the central bank's 4% goal.

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