Paraguay: investment grade, a 5.50% policy rate and local-currency debt, what Mercosur teaches European lenders

On 22 September 2026, the Central Bank of Paraguay held its policy rate at 5.50% while the ECB and the Fed are raising theirs. Two of the three major agencies now rate the country investment grade, public debt sits below 42% of GDP and the state increasingly borrows in its own currency. A textbook case for anyone financing real estate between Europe and South America.

While Europe and the United States tighten monetary policy, Paraguay is doing the opposite: it eased rates early in 2026 and has kept them there. This divergence, rarely discussed in Europe, says a lot about the gap between an emerging economy that has earned credibility and an advanced economy under inflationary strain. Groupe VINSIX, which structures financings between Europe and Paraguay, sees it as a case study in its own right for investors and borrowers.

A central bank that stands still while others hike

On 22 September 2026, the Monetary Policy Committee of the Central Bank of Paraguay (BCP) unanimously kept its policy rate at 5.50%, where it has stood since the start of the year, down from 6.00% at end-2025. The bank calls this stance neutral: inflation was 1.5% year on year in August and core inflation 1.3%, well below the 3.5% target, and it projects 3.3% by year-end. Activity is strong: the monthly activity index rose 5.5% year on year in July and 2026 growth is expected at 4.5%.

The committee nonetheless flags external risks: oil, with Brent above $100, the conflict in the Middle East and the prospect of further US rate rises, the Fed having lifted its range to 3.75–4.00%. The next meeting is on 23 October. For a European lender the message is clear: Paraguay has monetary room that the euro area, whose deposit rate has just moved to 2.50% with inflation at 3.2%, no longer enjoys.

• BCP policy rate: 5.50%, held on 22 September 2026 (unanimous)
• Paraguayan inflation (August): 1.5% year on year; core: 1.3%; target: 3.5%
• 2026 growth projected at 4.5%; July activity: +5.5% year on year
• Sovereign ratings: Moody's Baa3 (stable), S&P BBB-, Fitch BB+ (positive outlook at its last review we could verify)
• Public debt: $20.4bn, or 41.2% of GDP at end-2025; 22% in local currency after the February 2026 issue
• February 2026 issue: $1bn equivalent in 12-year guaraní bonds, 8.5% coupon, $1.5bn of demand

Investment grade: two agencies out of three, the third waiting in the wings

Paraguay won investment grade from Moody's in July 2024 with a Baa3 rating, the first agency to do so, then from S&P on 17 December 2025 with BBB-. On 17 July 2026 Moody's affirmed Baa3 with a stable outlook, citing solid growth, relatively low and stable public debt, credible monetary policy and political stability. It also points to weaknesses: a narrow tax base, a still sizeable share of foreign-currency debt and exposure to climate shocks affecting agriculture and hydropower.

Fitch rated the country BB+, one notch below investment grade, with the outlook raised to positive on 6 October 2025, citing robust growth, small deficits and moderate debt. The 2026 budget deficit is capped at 1.5% of GDP, which would bring the country back within its fiscal responsibility ceiling for the first time since 2018, according to the IMF. A third investment-grade rating would open the country to an even wider pool of institutional portfolios, which weighs on the cost of credit across the whole economy, banks and corporates included.

Sovereign debt is de-dollarising

This is one of the most instructive facts for a lender. On 24 February 2026 the Paraguayan state issued the equivalent of $1 billion in 12-year guaraní bonds at an 8.5% coupon, with $1.5 billion of demand from 64 international investors, alongside a $300 million tranche maturing in 2055 that was 6.3 times covered. For the first time, the deficit authorised by the budget could be financed entirely in local currency, lifting guaraní debt to a record 22% of the total.

The stakes are structural. Public debt reached $20.4 billion at end-2025, or 41.2% of GDP, of which 85% is external, versus 44.8% of GDP in 2024 according to the IMF. By comparison, investment-grade economies average 56% of GDP and several Latin American countries exceed 70%. Borrowing in local currency reduces the sovereign's exchange-rate risk and, by extension, that of the banking system.

Local mortgage credit: expensive, short, in guaraníes

The contrast with Europe is striking. According to the rate cards published in 2026 by the main lenders, guaraní mortgages run between 10% and 12.5% on banks' own funds, for terms of 20 to 30 years and financing usually capped at 80% of value, meaning a minimum 20% deposit. A line from the development finance agency (AFD) offers 9.65% on first-home programmes. In France, brokers report average rates of 3.52% over 20 years in September.

Take a loan of $100,000 in local equivalent over 20 years. At 3.52%, the monthly payment is about $581 and total interest about $39,400. At 10.9%, the rate quoted by one of the large banks on own funds, the payment climbs to about $1,025 and interest to about $146,100. The two figures are not strictly comparable, since one is in euros and the other in guaraníes, but the gap measures the premium the local market demands: scarce long-term funding, a shallower currency and a young credit market.

That market is growing fast. According to the IMF, private-sector credit grew 11% year on year in September 2025, after peaking at 22%, with non-performing loans at 2.4% and high bank profitability, a 21.9% return on equity. The system looks sound, though consumer loans carry 4.4% non-performing, which the authorities are watching. On the property side, apartments in Asunción are offered at around $1,744 per square metre according to a local property portal (asking prices, August 2026), far from European capital levels. That figure reflects the older stock, however: it does not prevent very high-end buildings from going up in Asunción, with a quality that at times exceeds European standards and draws more on the American model, at far higher prices, and which find buyers among wealthy clients, Paraguayan as well as from neighbouring countries, chiefly Argentine and Brazilian. Foreigners generally need residency and a local bank account to access credit.

My reading, for Groupe VINSIX

I take away three ideas for the files Groupe VINSIX reviews between Europe and South America. The first is currency. In the consultations we run with lenders, the question is no longer only the level of the rate but the currency in which the asset earns its income: rent in guaraníes financed in dollars carries an exchange-rate risk that credit committees now examine line by line. The de-dollarisation of sovereign debt sends them a favourable signal.

The second is ratings. I have seen, in complex structurings, that reaching investment grade does not change a file overnight, but it widens the circle of lenders willing to look at it: debt funds, insurers, development institutions. It is competition between those lenders, rather than negotiation with a single one, that brings the margin down; a debt arrangement is best designed as a dedicated issue as soon as the size justifies it.

The third is a warning. A 5.50% policy rate and 1.5% inflation mean a high real rate, and Paraguayan monetary policy will not stay still forever if oil and the Fed keep pushing. As in Europe, hedging and repayment structure decide how solid a financing is, more than the headline rate. The BCP meeting on 23 October will be a useful test, and I will follow it closely with the VINSIX teams.

This article is a general analysis and is neither personalised advice nor a promise of return.

Cyril Abensour — Managing Partner, Groupe VINSIX

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