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Guatemala Monetary Policy March 2020

Guatemala: Banguat slashes rates at two meetings in March

At its 25 March meeting, the Monetary Board of the Bank of Guatemala (Banguat) cut the key interest rate from 2.25% to 2.00%; this followed a cut from 2.75% to 2.25% on 19 March, which had marked the first rate cut in over two years. The policy rate now stands at an all-time low. In addition to lowering the interest rate, on 19 March the Bank relaxed certain credit regulations in order to help businesses and households meet their debt obligations. The Bank also stated that it stood ready to provide liquidity.

The decision to cut the key interest was driven by downside risks to the economic outlook. The Bank now expects the economy to grow at a notably slower pace than previously estimated. As such, the rate cut is aimed at buttressing economic activity through lowering the cost of credit for both companies and households, thereby mitigating the economic fallout of the pandemic. Mild price pressures gave the Bank the leeway to cut rates.

In its 25 March press release, the Bank reaffirmed it is closely monitoring domestic and external developments and their effect on price stability. While further loosening should not be ruled out in the near-term owing to Covid-19, unlike at the 19 March meeting the Bank omitted explicit mention of additional measures.

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