Guatemala: Central Bank continues to increase the monetary policy rate in September
Towards the end of the third quarter, the Monetary Board of the Central Bank of Guatemala (Banguat) continued to tighten financial conditions amid elevated inflationary pressures. At its 21 September meeting, Banguat raised the key policy rate from 2.75% to 3.00%. This brought the cumulative increase in the policy rate since the Bank commenced its tightening cycle in May to 125 basis points.
In deliberating its decision, the Bank highlighted greater inflation expectations for this year and next amid the external supply shocks on energy and food prices due to the war in Ukraine. The Bank, therefore, deemed further tightening necessary to cool inflationary pressures. Room for the maneuver was provided by high-frequency data pointing to sustained economic activity, consistent with the Bank’s expectations of 3.0–5.0% growth this year.
The Bank’s forward guidance did not explicitly mention the direction of monetary policy going forward. However, it strongly hinted at further tightening by stating that it is “committed to containing inflationary pressures in order to moderate the behavior of inflation expectations, so that they remain anchored to the goal”. Moreover, our panelists expect the Bank to tighten the financial belt further this year.
The next meeting is set for 30 November.
Analysts at the EIU commented:
“We expect policymakers to continue raising the rate gradually, to a peak of 3.5% in early 2023 (which is still low compared with most countries in the region). In any case, the low level of financial intermediation in the country will limit the impact of interest-rate rises on the wider economy.”