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Guatemala Monetary Policy February 2022

Guatemala: Central Bank keeps rate unchanged in March

The Monetary Board of the Central Bank of Guatemala (Banguat) stood pat at its 30 March meeting, keeping the monetary policy rate at 1.75%.

In deliberating its decision, Banguat noted that uncertainty levels and downside risks have increased due to the Russian invasion of Ukraine, which is expected to further fuel high levels of inflation internationally. That said, domestic inflation expectations remain well-anchored according to the Bank, as it expects inflation to remain within the target range of 3.0–5.0%. Regarding the economy, Banguat noted that high-frequency data continued to point to robust economic activity.

In the press release, the Bank reiterated its commitment to “continue closely monitoring the evolution of the main economic indicators […] that may affect the general level of prices and, therefore, inflation expectations.” The Bank, however, did not provide forward guidance in terms of the future direction of monetary policy. Panelists expect the Banguat to commence a tightening cycle this year as inflationary forces intensify, the economy continues to perform robustly, and policy normalization in major developed economies further supports tightening.

Analysts at the EIU commented:

“Amid an impending price shock from the Russia-Ukraine crisis, and with the US Federal Reserve […] set to tighten policy in March, we expect the Banco de Guatemala […] to begin its own monetary tightening cycle this year. A late-2020 price spike was quick to dissipate in Guatemala, and we expect a similar pattern in 2022; this suggests that policy tightening will not be dramatic. Given that Banguat will begin tightening in mid-2022, we expect rates to rise from 1.75% to a peak of 3% in 2023. At any rate, the low level of financial intermediation in the country will limit their impact on the wider economy.”

The next meeting is set for 27 April.

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