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Guatemala Monetary Policy February 2023

Guatemala: Banguat tightens rates further in February

At its meeting on 22 February, the Monetary Board of the Central Bank of Guatemala (Banguat) raised the key policy rate by 25 basis points to 4.50%. This brought the cumulative increase in the policy rate to 300 basis points since the Bank started its tightening cycle in May 2022.

February’s decision was motivated by a renewed surge in consumer prices: After two months of moderation, inflation returned to its October peak of 9.7% in January. In addition, Banguat stressed that price pressures are strengthening not only because of external supply shocks, but also due to second-round effects. In turn, this led inflation expectations to rise further. Robust economic indicators and forecasts for sustained GDP growth this year gave the Bank further room to maneuver.

Similar to previous statements, February’s communiqué did not provide any forward guidance. Banguat continued to affirm its commitment to tame inflation and inflation expectations, in line with domestic and external conditions. With inflation forecast to trend down through 2023, our panel sees Banguat lowering its policy rate from current levels by the end of the year.

The next monetary policy meeting is scheduled for 29 March.

Commenting on the outlook, analysts at the EIU said:

“As energy prices and imported inflation together account for nearly a third of domestic price increases, we expect that disinflation will be to be slow to set in (in a context of high global inflation) and that inflation expectations will remain elevated in the coming months. These factors are likely to lead to another 25-basis-point rate increase in March, which would take the policy rate to 4.75%.”

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