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Guatemala Monetary Policy November 2022

Guatemala: Banguat turns more aggressive with latest hike in November

At its latest meeting on 30 November, the Monetary Board of the Central Bank of Guatemala (Banguat) accelerated its hiking cycle, raising the key policy rate by 75 basis points to 3.75%. This brought the cumulative increase in the policy rate to 200 basis points since the Bank commenced its tightening cycle in May.

The steeper increase in the key policy rate was predominantly motivated by a significant and unexpected spike in consumer prices in October—inflation hit 9.7%, after 9.0% in September—which the Bank attributed to the emergence of second-round effects. Concerned about the impact on inflation expectations, the Bank deemed further tightening necessary. A robust domestic economy provided additional room for maneuver.

In its forward guidance, the Bank reaffirmed its commitment to bring both the rate of inflation and inflation expectations within its target range over the short term and stated it will “continue adopting the necessary measures”.

Commenting on the outlook, analysts at the EIU said:

“We expect Banguat to hold the rate for an extended period in 2023 before embarking on an easing cycle. Over the medium term, Banguat will ease the rate slightly, taking it towards 3% (or possibly below) as conditions normalise. In any case, the low level of financial intermediation in the country will limit the impact of interest-rate rises on the wider economy.”

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