Guatemala: Central Bank keeps rate unchanged in August amid well-anchored inflation expectations
The Monetary Board of the Central Bank of Guatemala (Banguat) opted to stand pat at its 25 August meeting, leaving the monetary policy rate unchanged at the all-time low of 1.75%. This marked the eighth consecutive hold.
In deliberating its decision, the Bank noted that inflation has been on a gradual downward path since March, despite some supply-side issues, and it is expected to remain within the 3.0%–5.0% target range this year and next. Moreover, the Board stated that economic activity has showcased stronger-than-expected growth on the back of firming domestic and external demand. This drove the Bank to upgrade its 2021 GDP growth forecasts from 3.0%–5.0% to 4.0%–6.0%, while it expects the economy to expand between 3.5% and 5.5% next year.
In the communiqué, the Bank’s tone was largely unchanged and it gave no explicit forward guidance in terms of future rate movements. The Bank reaffirmed “its commitment to continue closely monitoring the evolution of the main economic indicators, both external and internal, that may affect the general price level and, therefore, inflation expectations”. Looking ahead, the majority of our panelists expect Banguat to hold the rate at 1.75% for the remainder of the year. A notable output gap due to last year’s hit to GDP should limit upward price pressures and provide room for the Bank to maintain its accommodative stance.
The next meeting is scheduled for 29 September.
Analysts at Fitch Solutions commented:
“We […] expect Banguat to maintain its dovish stance, supporting credit flows to households and businesses. Our expectation for Banguat to hold its policy rate steady stands in contrast to major central banks across Latin America, which have adopted more hawkish stances in response to elevated inflation. […] Banguat will hike its benchmark policy rate to 2.50% by end-2022 as the economic recovery reduces the need for loose monetary policy and global central banks rein in their monetary stimulus.”