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Guatemala Monetary Policy August 2022

Guatemala: Central Bank continues to increase the monetary policy rate in August

The Monetary Board of the Central Bank of Guatemala (Banguat) increased its key policy rate by 50 basis points from 2.25% to 2.75% at its 31 August meeting. The decision was unanimous and marked the third consecutive hike, bringing the cumulative increase in the monetary policy rate since the Bank began its tightening cycle in May to 100 basis points.

Deliberating its decision, the Bank noted that external supply shocks have generated second-round effects on energy and food price inflation. The Bank therefore opted to send a clear message of its commitment to contain inflationary pressures and to prevent the de-anchoring of inflation expectations. Furthermore, high-frequency data pointing to robust economic growth provided the Bank with room to act decisively.

The Bank’s statement was void of explicit forward guidance, but it reiterated that it would continue to keep a close eye on both inflation and inflation expectations. As such, the balance of risks is skewed towards more rate hikes.

The next meeting is set for 21 September.

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.”

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