Guatemala: Central Bank keeps rate unchanged in November amid well-anchored inflation expectations
At its meeting held on 16 February, the Monetary Board of the Central Bank of Guatemala (Banguat) held fire and maintained the monetary policy rate at 1.75%. This marked the eleventh consecutive decision to stand pat.
The decision was driven by well-anchored inflation expectations and high-frequency data pointing to a continued robust economic recovery. The Bank expects inflation to end the year within its 3.0%–5.0% target range.
The Bank reiterated that it would continue to closely monitor the evolution of the main economic indicators that affect the general price level and, thus, inflation expectations. Looking ahead, panelists expect Banguat to commence a tightening cycle this year to ensure inflation settles within the target range amid firming economic activity.
Analysts at the EIU added:
“Although the Banco de Guatemala (Banguat, the central bank) has been absorbing excess liquidity (a product of pandemic-related stimulus measures), we expect monetary policy to remain fairly accommodative until mid-2022. The central bank is likely to hold the rate at 1.75% in the short term to support the economic recovery, owing to anchored inflation expectations. The central bank is likely to raise the policy rate in keeping with the U.S. Federal Reserve (Fed, the U.S. central bank), which is expected to begin raising the Fed Funds rate in March. That said, the low level of financial intermediation in the country will limit their impact on the wider economy.”
The next meeting is set for 30 March.