As part of the health emergency generated by the spread of covid-19, the Bank of Guatemala decided to reduce the prime interest rate again, from 2.25% to 2%.
The Monetary Board considered that, in the last few days, the perspectives of world economic growth for 2020 have deteriorated considerably, due to the persistent propagation of the coronavirus, which has increased the volatility and uncertainty at a global level, informed the Bank of Guatemala.
Arguing that the economic activity and the execution of public expenditure report a behavior attached to the growth forecasts for 2019, the Central Bank decided to maintain again at 2.75% the level of the leading interest rate of the monetary policy.
From the Banco de Guatemala statement:
Guatemala, November 28, 2019. The Monetary Board, in its session celebrated on November 27, based on the integral analysis of the external and internal economic situation, after evaluating the Inflation Risks Balance, decided to keep the level of the leading interest rate of the monetary policy at 2.75%.
Arguing that the economic activity reports a behavior attached to the forecasts of growth for 2019, the Central Bank decided to maintain in 2.75% the level of the leading interest rate of monetary policy.
The inflation forecasts for 2019 and 2020 are located within the tolerance margin of the goal established by the Monetary Board, was another of the arguments of the monetary authority to keep the reference rate without variations.
For the third time, in this year, the Banco de Guatemala confirmed that it decided to keep the monetary policy rate at 2.75%, since the short term indicators of the economic activity show a dynamism that adjusts to the expected.
From the Banco de Guatemala press release:
Guatemala, May 30, 2019. The Monetary Board, in its session held on May 29, based on the integral analysis of the external and internal economic situation, after evaluating the Inflation Risks Balance, decided to keep the level of the leading interest rate of the monetary policy at 2.75%.
For the Banco de Guatemala the behavior of several short term indicators follows the prognosis, the institution decided to keep the monetary policy rate without changes.
From the Banco de Guatemala press release:
Guatemala, April 25, 2019. The Monetary Board, in its session held on April 24, based on the integral analysis of the external and internal economic situation, after evaluating the Inflation Risks Balance, decided to keep the level of the leading interest rate of the monetary policy at 2.75%.
Banco de Guatemala decided to keep the monetary policy rate at 2.75%, arguing that several short-term indicators of the economic activity show a dynamism congruent with the projected range of economic growth.
Other reasons to keep the leading rate without variants is that the prognosis and inflation expectations, for 2019 as well as for 2020, are located within the tolerance limit of the goal (4% +/- 1%), according to the Banco de Guatemala.
The Bank of Guatemala has left the monetary policy rate unchanged, citing uncertainty and weakness in the international context, and expects growth of 4.9% in GDP in 2017.
In the domestic environment the Bank of Guatemala (Banguat) stressed that economic activity continues to record behavior consistent with the target range for 2016 (between 3.1% and 3.7%), which is reflected in the evolution of severaleconomic activity indicators (Monthly Index of economic activity, bank credit to the private sector in domestic currency, volume of imports and remittances, among other things).
The Bank of Guatemala is keeping the leading rate at 3% arguing that the economy is keeping up a steady rate of growth of between 3% and 4%, in line with expectations for this year.
From the statement "Summary of the arguments to determine the level of monetary policy rate session 19-2016:
In the internal environment, the Acting Chairman highlighted the evolution of economic activity, measured by the IMAE trend-cycle, which in February recorded a variation of 3.4%, consistent with the annual estimate of economic growth of between 3.1% and 3.9% for this year. In the external sector, in February, it was noted that exports went down by 3.3%, a result of a decrease in volume (4.5%), which offset the slight increase in the average export price; while imports fell 4.2% as a result of the fall in the average price (14.0%), especially of fuels and lubricants, while the volume of imports recorded an increase (11.6%). In addition, it was noted that foreign exchange earnings from remittances continue to reflect a significant dynamism, supporting private consumption. Regarding the nominal exchange rate, it was emphasized that this is evolving according to its fundamentals, remaining stable so far this year.
The Monetary Board, at its meeting on June 25, decided to lower the monetary policy leader rate from 4.75% to 4.50%
Among the arguments given by the authorities of the Central Bank of Guatemala were "... the behavior of the price of raw materials such as corn and wheat products which are holding a downward trend ... and the rising oil price."
On the domestic side the monetary authority said that "...
Analysis of the international economic scenario, Guatemala's internal situation, and decisions on Leading Monetary Policy Interest Rate.
In determining the rate leader the following was taken into consideration:
In the external environment:
The global economy continues to recover, particularly in advanced economies, although there are still downside risks, especially in emerging market economies.
The current Superintendent of Banks of Guatemala, Edgar Barquin, will take over the presidency of the Central Bank of Guatemala on Friday.
Barquin is a CPA, auditor, attorney, notary and was one of the creators of Guatemala president Alavaro Colom´s economic plan. He will replace Maria Antonieta Del Cid de Bonilla.
According to prensalibre.com, Banguat currently is responsible for keeping inflation under control as well as implementing monetary, currency exchange and credit policies."
The International Monetary Fund (IMF) report sheds a positive light on the country's macroeconomic situation and the stability of its financial system.
A staff team from the International Monetary Fund (IMF) visited Guatemala during August 17-26, 2010 to conduct the fourth and final review of the Stand-By Arrangement approved in April 2009. The mission met with Minister of Finance Edgar Balsells; Central Bank Governor María Antonieta de Bonilla; Superintendent of Banks Edgar Barquín; other senior government officials, and representatives of the private sector.
The recent increase in the value of the Costa Rican colon versus the dollar is worrisome, not only because there are no clear reasons to explain it, but also because it would be hard to contain it without causing greater problems.
In the past weeks, and without apparent reason, the price of the U.S. dollar in Costa Rica dropped considerably.
Last week we surveyed some financial operators as to why these movements where occurring, the general answer being: “we don’t know”.
The letter of intent spells out the Guatemalan Government’s fiscal and monetary policy for the 2009-2010 period.
In the letter of intent, Guatemalan authorities have requested a Stand-By Agreement (SBA) for a period of 18 months, with full access to 630.6 million in Special Drawing Rights (SDRs) (about $951 million.) An initial purchase of 420.4 million in SDRs (about $634 million) will be available upon the Board’s approval of the agreement.
FMI: "Recessions associated with financial crises tend to be severe. Recoveries from such recessions are typically slow."
If such recessions are globally synchronized then they tend to last even longer and be followed by recoveries that are even weaker.
Countercyclical policies can be helpful in ending recessions and strengthening recoveries. In particular, expansionary fiscal policies seem particularly effective.