Guatemala: Central Bank lifts interest rates despite declining inflation
October 10, 2011
In September, consumer prices dropped 0.07% over the previous month, which contrasted the 0.60% increase tallied in August. According to the National Statistics Institute, the monthly drop reflected declining prices for food and non-alcoholic beverages as well as for transport. Annual headline inflation fell from 7.6% in August to 7.2% in September, the first decline since March. Meanwhile, the core inflation index, which smoothes out more volatile categories, added 0.16% over the previous month. Annual core inflation remained unchanged at Augusts' 5.4%. At its 28 September meeting, the Central Bank decided to lift the monetary policy rate by 50 basis points to 5.50%. The Bank's decision represented the third interest rate hike this year. In March, the Central Bank had lifted the policy rate from 4.50% to 4.75%, followed by a 25 basis-point hike in July. Monetary authorities stated that, despite a moderation in global economic activity and increasing risks in the Eurozone, recent economic indicators continued to show favourable conditions for the ongoing recovery, with the external sector and the expansion of credit to the private sector showing healthy developments. Moreover, the Bank reckoned that inflation expectations remained elevated, emphasizing that monetary policy should act decisively to bring down inflation prospects. 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% 1.0%.
Author: Ricardo Aceves, Senior Economist