While inflation in Paraguay falls to 2.3%, economic analyst Wildo González, warns that the real costs of monetary policy are being ignored. In a recently published article, he states that the 23% appreciation of the guarani since July 2025 is equivalent to a 23% reduction in the operating margin of agro-industrial exporters, whose costs are in local currency and revenues in dollars. For many sectors, this means operating with negative margins.
García highlights that private investment contracted in the first quarter, real credit is stagnant, and business expectations are the lowest in three years. None of this data appears in the communiqués of the Central Bank of Paraguay (BCP), which celebrates inflation convergence without mentioning the strongly contractionary financial conditions for the real sector. “It is not a success, it is a precarious balance. It is celebrating that the patient has good blood pressure while bleeding,” he writes.
The greatest risk, according to the analyst, is yet to come. The appreciation of the guarani coincided with the liberalization of the use of currency derivatives for non-residents, a measure that allowed these agents to take synthetic long positions in guaranis through forwards. When these positions mature – or when global flows reverse due to a tightening by the US Federal Reserve, increased volatility, or portfolio rebalancing – the guarani will depreciate asymmetrically, faster and more intensely than the previous appreciation. Historically, the exchange rate pass-through to inflation is greater in depreciations than in appreciations. García estimates that a rebound of 8 to 12 percentage points in the exchange rate, feasible within a few weeks, could raise inflation by 2 to 5 percentage points in six to nine months.
The BCP, however, did not accumulate reserves during the appreciation – a missed opportunity that limits its intervention capacity. It also lacks high-frequency open market operations (OMOs) to inject liquidity precisely, nor an operational rate corridor to transmit policy adjustments efficiently. “It will face the worst possible scenario: depreciation, inflationary pressure, and an impoverished toolkit,” says García.
The analyst recommends that the BCP abandon the fantasy that the inflation targeting regime is reduced to calibrating the monetary policy rate (MPR) once a month. A modern set of instruments would include weekly or daily OMOs, a rate corridor with symmetric overnight facilities, contingent foreign exchange intervention under explicit rules, and effective coordination with the Ministry of Economy and Finance (MEF) to neutralize the impact of the floating debt of US$ 1.5 billion, which drains liquidity without coordination. García cites Chile, Peru, and Colombia as examples that implemented these tools a decade ago.
“Achieving 2.3% inflation through currency appreciation and liquidity asphyxiation is not a monetary policy success. It is a situation of precarious balance, vulnerable to reversal,” he concludes. He compares the situation to that of the Spanish conquistador Alejo García, who in 1524 found something without seeking it and celebrated it as a discovery. “The BCP has access to the map: Chile, Peru, and Colombia have already traveled this path. The question is whether it will build this toolkit now, with time, or whether it will wait for a currency crisis to force it to do so urgently, when it is already too late.”