Central Bank holds rates in May

Central Bank extends hold: On 28 May, the Monetary Board of the Central Bank of Guatemala (Banguat) held its key policy rate at 4.50%, unchanged since November 2024.

Trade uncertainty trumps low inflation: The Central Bank justified its decision to keep rates unchanged by highlighting that inflation remained below its 3.0–5.0% target range for an eighth consecutive month in April. The Bank also estimates that inflation will continue to average below target this year as a whole and below the target midpoint in 2026. That said, the Bank held off on rate cuts due to high external economic uncertainty and the U.S. Federal Reserve’s hawkish stance in light of Trump’s erratic tariff policy.

Cuts likely to resume on promising inflation outlook: In its release, the Banguat stated that if inflation stays in line with its 2025 projections, the Bank could resume monetary easing next month. This aligns with our panelists’ forecasts for 25–100 basis points of rate cuts by year-end. Upside risks to rates include the Fed extending its monetary easing pause because of higher inflation, while downside risks include slower-than-expected growth in Guatemala. The Bank will reconvene on 25 June.

Panelist insight: EIU analysts weighed in: “We expect Banguat to resume rate cuts in the second half of the year and continue gradual easing, reaching a terminal level of 2.75% by early 2027. […] Guatemala's low level of financial intermediation reduces the influence of interest-rate pass-through, and changes in local and global financing conditions influence economic performance. Mr Trump's tariffs and anti-immigration plans could stoke inflationary pressures in the U.S. and prompt the Fed to keep interest rates higher for longer there, limiting the scope for further monetary easing in Guatemala as well.”

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