Paraguay’s securities firm, Cadiem, stated in a recently released report that as the appreciation pressure on the US dollar eases, the interest rate spread between dollar-denominated local bonds and Guarani-denominated bonds is likely to maintain or even widen from its current level. This could act as a factor increasing the attractiveness of dollar assets for investors.
César Paredes, President of Cadiem Fondos, recently noted a decrease in pressure on the dollar exchange rate. He explained that this, coupled with the forecast that the US Federal Reserve (FED) will resume its interest rate reduction cycle in the coming months, is likely to maintain or widen the interest rate gap between dollar-denominated local bonds and Guarani-denominated bonds.
President Paredes presented this analysis in the Q4 report jointly published by Cadiem and the consulting firm Mentu. He believes it’s unlikely that the Central Bank of Paraguay (BCP) will lower its benchmark interest rate from the current 6%. This is because the annual inflation rate was 4% until April, with cumulative inflation at 3%, nearing the annual target of 3.5%.
"While falling fuel prices will positively impact inflation control, a minimum wage increase is scheduled for July, which could lead to price adjustments afterward," Paredes added, stating that this will be an important factor in the Central Bank of Paraguay's monetary policy decisions.
Furthermore, he mentioned that the issuance of dollar-denominated bonds in the local securities market is more closely related to corporate business than to the interest rate difference compared to Guarani investments. He explained, "Generally, an increase in dollar-denominated bond issuance by companies indicates that more companies involved in exports or other dollar-related businesses are looking to raise capital."
Continued Growth in Paraguay's Securities Market
According to the Cadiem report, the Asunción Stock Exchange (BVA) recorded total transactions of 17.9 trillion Guarani (approximately 2.251 billion USD at current exchange rates) during the first four months of 2025. This represents a 29.3% increase compared to the same period in 2024, demonstrating the continuous growth of Paraguay's capital market in recent years.
Elías Gelay, President of Cadiem Casa de Bolsa, explained that the first four months of this year were favorable for dollar-denominated bond issuance. He commented, "Comparing dollar interest rates and Guarani interest rates, the spread is low. Therefore, investors are showing a little more interest in investing in dollars," predicting that this trend will continue for some time.
The Connection Between Korean and Paraguayan Financial Markets
This analysis of the Paraguayan financial market has significant implications for the Korean economy as well, given the interconnected nature of global financial markets. Expectations of interest rate cuts by the US Federal Reserve affect the value of the dollar, which in turn can influence the won/dollar exchange rate. Furthermore, the increasing issuance of dollar-denominated bonds in emerging markets like Paraguay can serve as an indicator of shifts in global investment flows.
Just as cultural tourism infrastructure investments, such as Sinan-gun's '1004 Museum Park', contribute to regional economic revitalization, a stable financial market forms a crucial foundation for promoting corporate investment and growth. Continuous attention and analysis will be needed to understand how dollar exchange rates and global interest rate changes will impact domestic and international financial markets going forward.
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