Reducing the Monetary Policy Rate to 4.5% and temporarily suspending the daily auctions of Bills aimed exclusively at financial institutions are some of the measures taken by the Central Bank of Honduras in response to the spread of the covid-19.
Faced with a domestic and external context of greater uncertainty and volatility, the Central Bank of Honduras (BCH) established a set of monetary policy measures in order to continue flexibilizing financial conditions that allow the private financial system to have liquidity to meet the needs of the population at this time of high demand, the institution reported.
In a context where economic activity continued to show moderate growth at the end of 2019, the Central Bank decided that as of February 10th the Monetary Policy Rate would be reduced from 5.5% to 5.25%.
Arguing that the inflationary expectations of the economic agents are still close to the upper limit of the tolerance range with a decreasing tendency, the Central Bank of Honduras decided to keep the monetary policy rate at the same level.
For the IMF, recent steps towards a more flexible exchange rate, especially by reducing currency surrender requirements, are positive.
The international organization encouraged the country to a gradual transition to exchange rate flexibility and to continue efforts to strengthen the operational autonomy and governance of the central bank with a perspective of a gradual transition to an inflation targeting regime.
Arguing that core inflation remains below total inflation, the BCH decided to maintain the Monetary Policy Rate at the same level.
From the BCH statement:
May 9th, 2019. In ordinary session No.164 held on May 6, 2019, the Open Market Operations Commission (COMA) of the Central Bank of Honduras (BCH) analyzed the current situation and prospects of the main macroeconomic and financial indicators, at the national and international levels.
Arguing that the medium-term forecasts indicate that the inflation trajectory will remain above the tolerance range, the BCH decided to raise the Monetary Policy Rate by 0.25%.
From the BCH press release:
January 4th, 2019. In ordinary session No.158-10-12/2018, the Open Market Operations Commission (COMA) of the Central Bank of Honduras (BCH), analyzed the recent evolution and perspectives for the main macroeconomic and financial indicators, at domestic and international levels.
In its review of the monetary program, the Central Bank has raised the expected economic growth rate for the biennium 2017-18, from 3.4% - 3.7%, to 3.7% - 4.1%.
From the executive summary of the report "Review of the 2017-18 monetary program" by the Central Bank:
The Board of Directors of the Central Bank of Honduras (BCH), in fulfillment of its powers, presents the Monetary Program (MP) Review 2017-2018 published in March of this year. This document contains an update of the macroeconomic framework for the aforementioned biennium, adapting it to thefirst half of year of the international and domestic economy, as well as to the latest perspectives on the world economy.
Considering the international context and the recent performance of the national economy, the Central Bank has decided to reduce the monetary policy rate from 5.75% to 5.50%.
From a statement issued by the Central Bank:
The Commission on Open Market Operations (COMA) at the Central Bank of Honduras (BCH), in ordinary meeting No.128 on June 14, 2016, discussed the recent developments and prospects for the main macroeconomic and financial indicators, at the national and international level.
Justified by the slowdown of the global economy, for the third time this year the Central Bank of Honduras has reduced the monetary policy rate by 0.25%.
From a statement issued by Banco Central de Honduras:
BANCO CENTRAL DE HONDURAS REDUCES MONETARY POLICY RATE TO 6.25%
The Board of the Central Bank of Honduras (BCH) in reaction to a proposal from the Commission on Open Market Operations (COMA) and after analyzing the recent performance and prospects for the main macroeconomic and financial indicators, both nationally and internationally, has decided to change the monetary policy rate (TPM) based mainly on the following:
The Central Bank of Honduras has reduced the monetary policy rate by 0.25%, setting it at 6.75%, which has created the expectation of lower interest rates in the domestic market.
From a statement issued by Banco Central de Honduras:
A recommendation has been made that there be greater exchange rate flexibility within the current regime which would strengthen the external position and alleviate the costs of fiscal adjustment.
From a press release issued by the International Monetary Fund:
The planned and gradual devaluation of the currency favors the competitiveness of the economy by providing certainty in commercial transactions.
Also the competitiveness of the economy benefits when a properly fixed exchange rate does not generate profits for one sector to the detriment of another. The government has programed an annual slip of 5% for 2014, 2015 and 2016 and a depreciation of 4.5% per year for 2017 and 2018, a measure which is supported by the banking sector.
Despite the recommendation of the IMF's to make the exchange rate flexible, the government program forecasts that the Lempira will slip between 4.5% and 5% over the next four years.
Just as it did at the end of 2012, the IMF has again recommend that policymakers devalue the local currency, the Lempira, in order to minimize the negative effects of the growing fiscal deficit, which to date is equivalent to 68 % of GDP.
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