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Guatemala Monetary Policy June 2020

Guatemala: Banguat lowers interest rate in June to stimulate economic activity

At its 24 June meeting, the Monetary Board unanimously decided to reduce the policy rate by 25 basis points from 2.00% to 1.75%—an all-time low.

The decision to cut the interest rate was driven by a desire to buttress the economy, which has suffered amid the fallout from Covid-19; the monthly economic activity index showed a huge drop in April—the latest month for which data is available. Consequently, the Board revised down its projection for GDP this year, and now expects the economy to contract between 3.5% and 1.5%, from May’s forecast of -1.5% to +0.5%. However, the Bank noted that inflation expectations remained anchored to target despite the grimmer outlook.

In its press release, the Bank adopted a largely unchanged tone from the prior meeting, and gave no explicit forward guidance on future rate moves. That said, a recession this year and relatively benign inflation could provide the Bank with the justification to further lower rates.

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