Guatemala: Banguat stands pat at its 27 May meeting
At its 27 May meeting, the Monetary Board of the Bank of Guatemala (Banguat) stood pat and kept the key interest rate at an all-time low of 2.00%, where it has been since March.
The decision was based on anchored inflation expectations, and the fact that many governments around the world are lifting restrictions on activity, which Banguat judged would support the Guatemalan economy in H2. While the Bank noted that as a result of the pandemic the Guatemalan economy has been begun to moderate—remittances tumbled in April for instance—this is in line with the Bank’s earlier projections for this year of between a 1.5% contraction and 0.5% growth.
In its press release, the Bank stated it would continue to closely monitor economic developments at home and abroad and their effect on inflation and inflation expectations. Our panelists expect the economy to enter a recession this year, and, as such, project the Bank to cut rates further to soften the fallout from the pandemic. Softening inflation due to weak aggregate demand provides the Bank with room to ease its monetary policy stance. Much will depend, however, on the speed and strength of the gradual normalization of economic activity.