Guatemala: Central Bank hikes interest rate although inflation moderates in March
April 8, 2011
In March, consumer prices rose 0.92%, which was above the 0.75% increase observed in February. The monthly rise reflected higher prices for food and beverages, housing, as well as for transport and communications. Despite the pronounced monthly price increase, annual headline inflation stepped down a notch from 5.2% in February to 5.0% in March. Inflation has been hovering around 5.0% since November 2010. The core inflation index, which smoothes more volatile categories of the consumer price index, added 0.44% over the previous month, leaving annual core inflation unchanged at February's 3.8%. Meanwhile, at its latest meeting held on 30 March, the Central Bank decided to rise the policy rate by 25 basis points to 4.75%, which represented the Bank's first revision of the rate, after it had cut it to the record-low of 4.50% in September 2009. Monetary officials argued that the recent spike in international food and oil prices is likely to reflect long-term trends, rather than short-term volatility, prompting authorities to adopt tighter policy measures to anchor inflation expectations to the inflation target of 5.0% 1.0%. Moreover, officials acknowledged that the ongoing economic recovery in the industrialised economies remains on track, although risks regarding the events in the Middle East and North Africa, as well as in Japan persist. The next policy meeting is scheduled for 27 April. The Central Bank has an inflation target of 5.0% 1.0% for this year. For 2012, monetary authorities have set an inflation target of 4.5%.
Author: Ricardo Aceves, Senior Economist