The monetary board decided yesterday to keep the main interest rate at 7.25%, despite the request from the business sector to lower it in order to revive the economy.
How many houses are not being built and how many business projects have been stopped due to the lack of credit or the increase in interest rates? And, how many potential jobs have been lost as a result?
Tomorrow the Superintendence of Banks (SIB) will request that the Monetary Board approve a modification of the Regulations for Credit Risk Management.
Even though bank portfolios in arrears are not at a critical level, the SIB will request that the Monetary Board make the changes to the rules in order for banks to increase their reserves for bad debts (loans).
Businessmen estimate that a reduction in the rate which is now at 7.25% would help to reactivate credit.
There are division and the debate is hot. The petition from the industrial sector to lower the main interest rate in order to reactivate the economy has its supporters and dissidents.
Representatives from the private sector believe that it is time to make an adjustment.
Managed by CABI and financed by the Soros Foundation, the Mirador Monetario will contribute to transparency in the Financial System of Guatemala.
Managed by Central American Business Intelligence, the mission of the Mirador Monetario is "to be the leading source of information and education regarding financial monetary matters and to expand to the rest of countries in CA."
"I wish that it would be someday!" said Mexican president Felipe Calderon, pointing out that Latin America has very distinct economic and monetary policies.
He also highlighted the various exchange rate and monetary systems. "There are countries which have their own currency and the corresponding seigniorage; and there are countries which used other countries' currencies, such as El Salvador or Ecuador, which have their economies in US dollars.
In order to reduce the effects of the economic slow down, some politicians are turning to monetary policy or the Central Bank. They believe that by printing more money there will be more wealth, more investment and more employment.
When a Central Bank, such as the US Federal Reserve (FED) or the European Central Bank, increases the amount of money in circulation it is done by reducing interest rates. This excess liquidity is channeled firstly towards the financial system, causing an excess in credit which forces the financial institutions to reduce or relax credit requirements for its clients in order to reduce its monetary reserves caused by the excess liquidity that was created by the Central Bank policy of "easy money". Nonetheless, this "easy money" policy cannot be maintained because printing more money can NEVER generate greater wealth. All excess liquidity eventually translates into a "bubble", or a increase in the rate of inflation, or both.
Several sectors of Guatemala's economy are making dire predictions about the negative effects of the Central Bank's decision to raise its benchmark interest rates as part of its anti-inflation strategy.
Among the expected effects are corresponding increases in bank loan rates, less investment, more unemployment, and exchange appreciation, all of which spell more problems for the economy.
Guatemala's Monteary Committe kept the leading seven-day interest rate at 6.75 percent. the rate is one of the government's tools to control prices.
Maria Antonieta Del Cid de Bonilla, present of the Bank of Guatemala (Banguat) and of the Monteray Committee, said during a press conference that the decision was made unanimously.
Inflation is a world-wide problem, said Julio Suárez, vice-president of Guatemala's central bank, Banguat. Suárez was replying to a question on the nation's current annual inflation rate of 12.24 percent.
Suárez said the the rate of inflation was slowing down. Prices, he said, rose by 1.4 percent in May compared with 1.43 percent in April. Meanwhile, inflation was worse in April in Costa Rica (1.9 percent) and Honduras (1.8 percent) than in Guatemala.
The monetary restrictions that hit the Guatemalan economy in recent months is no longer severe and monetary indicators are back in line with the government's plans, Finance Minister Juan Alberto Fuentes said in an interview.
The government's decision to release more budget funds and interventions by the central bank, Banguat, have helped to restore liquidity, Fuentes added.
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