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Guatemala Monetary Policy March 2023

Guatemala: Banguat mirrors February’s movement, hikes 25 basis points in March

On 29 March, the Monetary Board of the Central Bank of Guatemala (Banguat) raised the key policy rate by 25 basis points, mirroring February’s decision, to 4.75%. With the latest hike, the cumulative increase in the policy rate amounts to 300 basis points since May 2022.

March’s decision was motivated by headline inflation reaching 9.9% in February, above the Bank’s 3.0–5.0% target range, and core inflation reaching 5.4%. In line with the trend seen since H2 2022, around 60% of the headline figure is explained by external factors. As a result of the lagged effects of past hikes, and lessening imported inflation, the Bank expects inflation to converge towards the target range by the end of the year.

The Bank highlighted the need to balance taming inflation and supporting economic growth, which motivated it to enact another small hike, continuing its incremental tightening. The Bank sees the economy growing around 2.5–4.5% year on year in 2023, in line with our Consensus Forecast.

Similar to previous releases, the Bank did not provide hints regarding forward guidance. Banguat affirmed its commitment to tame inflation and anchor expectations. The majority all of our panelists believe that the monetary authority has reached the end of its hiking cycle and expect a lower policy rate by the end of the year.

However, analysts at the EIU do not think the tightening cycle is over yet:

“We believe that the balance of risks is tilted towards further tightening in the current cycle, particularly if disinflation is more gradual than we expect. Over the medium term, Banguat will bring the rate down towards 3% (or possibly lower) as conditions normalize. In any case, the low level of financial intermediation in the country limits the impact of interest-rate rises on the wider economy.”

The next monetary policy meeting is scheduled for 26 April.

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