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 "...
The benchmark for interests rate for loans and investments in the country will stand at 6.95% until at least Wednesday June 25.
The passive base rate indicator, which is calculated by the Central Bank reflects the average rates given for deposits by financial institutions on fixed terms of 150-210 days, will stay for one more week at the level of 6.95%.
The movement could respond to the lower volatility of the exchange rate seen from the beggining of administration of Luis Guillermo Solis on May 1st this year.
The margin between buying and selling dollars at the counters of financial institutions has declined from 13 to 10 colones colones in the last eight days, after several weeks of constant central bank interventions in the wholesale forex market, movements which the market interpreted as efforts to stabilize the price of the dollar against the colon and prevent it rising beyond what is deemed appropriate by the authorities at the Central Bank.
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:
On June 9, 2014 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Honduras.
A proliferation of articles, reviews and editorials on the exchange rate is the best example of the prevailing concern in a market waiting for a clear definition of the exchange rate policy by the Central Bank.
Editorial
In recent weeks, and while the President of the Central Bank of Costa Rica (BCCR) is denying it , warnings have been given over interventions in the foreign exchange market by the monetary authority.
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.
Taking into account stable macro economic variables at the national and the global level, the Bank of Guatemala has decided not to change the policy leader rate, the main reference for interest rates in the country.
From a statement issued by the Bank of Guatemala (BANGUAT):
THE MONETARY BOARD KEEPS MONETARY POLICY LEADER INTEREST RATE AT 4.75%
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.
The Economic Situation report by FUSADES notes that the growth of the Salvadoran economy in the last 5 years has averaged 0.8%.
From a statement issued by the Salvadoran Foundation for Economic and Social Development (FUSADES):
During the last five years (2009-2013), the economy has deteriorated in terms of growth and macroeconomic stability. In the first quarter 2014 performance continued to weaken, showing a clear need for a national agreement which creates the conditions of stability and growth required to tap the potential of Salvadorans.
The Bank of Guatemala is keeping at the same level its leading policy rate, which is the main reference for interest rates in the country.
From a statement issued by the Bank of Guatemala:
The Monetary Board, at its meeting held today, decided to keep the leading monetary policy interest rate at 4.75%, based on a comprehensive analysis of the external and internal situation, having been made aware of the Balance of Inflation Risks.
Some companies can become richer than others overnight, depending on decisions made by a few public officials.
Editorial
An article in Elfinancierocr.com reports on the positive effects of the devaluation of the national currency of Costa Rica, the-Colón, agains the dollar, for exporters in the country.
The causes of the devaluation were mainly external, but were catalyzed by decisions made by public officials, the Central Bank, whose missive it is to defend the value of the national currency, because this supposedly contributes to the economy.
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 Bank of Guatemala has lowered the leading policy rate, the reference for interest rates in the domestic financial system, from 5% to 4.75%.
The Monetary Board decided to lower the leading policy rate by 0.25 percentage points based on the external and internal economy, seeing a recovery in global economic activity.
From a press release issued by the Bank of Guatemala:
Appreciation of the quetzal against the dollar has affected the income of exporters who are asking the monetary authority to stop overvaluation of the local currency.
The President of the Guatemalan Association of Exporters (Agexport) reported that the strength of the quetzal is causing products in the country to be more expensive and therefore a change in monetary policy is needed.
The decision by the Central Bank seeks to ease inflationary pressure on exchange rate rises and may increase interest rates in the short term.
Bankers and analysts agree that interest rates in the financial system will tend to rise in the coming months, as inflation is being pushed upward by the recent movements in the exchange rate.
The Central Bank of Costa Rica (BCCR) , in an attempt to keep inflation within the target range, has raised the policy rate from 3.75 % to 4.75%. This indicator is a benchmark for financial institutions who pay this rate on on overnight funding in the liquidity market.