In recent months the banking system has reduced interest rates on loans to large corporations.
In March 2009, the average interest rate on loans over $650,000, stood at 9.75%, changing to 9.29% in December 2010 and in March of this year is was 8.43%, showing a downward trend.
"Loans of less than $650,000 and higher than $23,000 show the same characteristic.
The Bank of Guatemala has increased the monetary policy leading interest rate from 4.75% to 5.00% taking effect from 28 July.
In its analysis, the Monetary Board took into consideration that the global economy is continuing to expand, albeit at a slower pace than expected. However, according to the International Monetary Fund, this moderation in growth is temporary and forecasts still point to global growth being located above the historical average. It also found that international prices of raw materials (oil, corn and wheat) in recent weeks again showed an increasing trend and are staying at levels high compared to the previous year
The Monetary Board has unanimously decided to not to change the monetary policy’s prime lending interest rate, keeping it at 4.75%, based on a comprehensive analysis of the internal and external situation.
In making this decision the Monetary Board took into account the following:
a) The risks in the international economic environment associated with the performance of economic activity in some advanced economies, particularly the United States and Europe have increased.
Banks are offering rates of up to 7.5% for mortgage loans, both consumer and corporate.
Mauricio Alvarez, manager of the Banco de los Trabajadores (Bantrab) noted that low interest rates abroad has meant that much "capital is returning to the country because the rates are better."
"Erasmo Velasquez, president of National Mortgage (CHN), noted that there are now market rates of between 8 and 10 percent annually, compared to a year ago when they were 11 and 12. From an article in Elperiodico.com.gt
In order to keep inflation in check, the central bank raised the rate to 4.75%.
The improvement experienced by the economy and escalating raw material prices are some of the reasons which has led the Central Bank of Guatemala (Banguat) to raise its interest rate, which controls the growth of prices in the country.
Journalist Dardón Diaz in his article for La Prensa Libre notes that, "when prices rise too much, Banguat has the option of increasing the rate and thus encouraging banks to take their investment capital to short term, this decreases less favorable credits and consumption, which causes prices to decline."
The average interest rate charged by banks to corporate customers has fallen more than 10% over the last 2 years.
In December 2008, the average rate for corporate loans over $ 650.000 was about 9.72%, dropping to 8.55% in February 2011.
Luis Lara, CEO of Industrial Bank, stated that they have not seen such low rates in the country for a long time, which is good because "it allows for meaningful projects to get done."
Business loans of more than $ 640.000 pay between 8% and 12.5%.
Business loans of less than $ 640,000 pay considerably more, between 11.3% and 34.4%.
The information comes from the monthly report generated by the Bank Superintendence of Guatemala, which for the first time includes interest rate information filtered by credit portfolio, economic activity, type of credit and rank.
In a scenario of rising interest rates, the strategy to follow by investors should be of more activity.
Aldesa´s analysts explained in their blog, Pulse Securities, that when interest rates are falling, the investment advice is to invest soon and long-term, in order to ensure presumed higher performances than those available in the future and during the period of low interest rates.
Inflation deceleration and Risks to economic recovery.
The quarterly report from the Executive Secretary of the Central American Monetary Council (SECMCA) focuses on the region's inflation and recovery prospects.
Inflation, measured by year-on-year change in consumer prices, slowed in the second quarter of 2010 to 4.9%, compared to 2.9% in June 2009. This level is within the target limits set by the region's central banks.
A report by “Mirador Monetario” analyzes if the country has met the inflation targets set by the Monetary Board (Central Bank).
It provides information on the evolution of inflation, monetary policy targets as well as the overall effectiveness of the implemented policies.
In order to decide if such policies were effective, the report conducts an historical analysis, comparing the proposed inflation targets and the real observed levels.
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”.
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
According to Fitch Ratings, even though the economic scenario has improved, Central American banks face challenges related to the quality of their assets.
Central American banking systems have weathered the financial crisis relatively well. Even though profits fell considerably during 2009, industry solvency levels remain good. Profits fall mostly because banks opted for liquid assets and increased their expenses in provisions.
The Monetary Board decided not to modify the Leader Rate, which currently stands at 4.5%.
For this decision, the board pondered that most global growth projections point to an economic recovery.
"If this scenario comes to reality, and considering the recent behavior of commodity prices, it would be less necessary to continue with our previous monetary policy measures", stated the Board.
Banking interest rates keep increasing, despite strong reductions in the Leader Rate by the Central Bank of Guatemala.
The Central Bank of Guatemala (Banguat) has reduced its Leader Rate for monetary policy 37.8% in the past 19 months. However, in the same period interest rates have increased 18.9%.
Carlos Gonzalez, analyst at Asies, explained that "...