Saturday, May 9, 2020

Honduras maintains rate, economy seen shrinking

     Honduras' central bank left its monetary policy rate steady but lowered its forecast for economic growth this year to a contraction of between 2.9 and 3.9 percent due to measures to limit contagion from the Covid-19 pandemic while inflation is also seen slowing.
     The Central Bank of Honduras (BCH), which has cut its rate twice this year by a total of 100 basis points, left its rate at 4.50 percent at a meeting of its open market operations commission (COMA) on May 8.
      Since November 2019, when BCH began easing, the rate has been cut 125 points.
      BCH said the economic contraction began in the second quarter but liquidity in the financial system currently remains comfortable.
      It added it would continue to evaluate the internal and external situation and if necessary implement addition measures.
      In addition to the rate cuts in February and March, the central bank also freed up some 11.5 billion lempira in liquidity on April 7 by easing regulations on banks.
      The forecast of an economic contraction this year comes after the central bank in March forecast economic growth of between 1.5 percent and 2.5 percent this year, down from 2.7 percent in 2019. In 2021 the economy was forecast to expand between 2.0 and 3.0 percent.
     On May 7 staff from the International Monetary Fund (IMF) proposed augmenting access for Honduras by US$222 million, bringing total access to $530 million.
     "The COVID-19 pandemic is having a substantial adverse impact on social and economic conditions in Honduras," the IMF said, forecasting economic contraction of some 3.3 percent this year.
     IMF also said Honduras' authorities were undertaking a well-targeted fiscal response to the pandemic while ensuring strong transparency and accountability.
     However, the impact of the necessary mitigation measures to ease pressure on the health system and protect lives, along with large external spillovers from remittances, exports and tourism, along with lower tax revenue from the recession, would generate large increases in fiscal and balance of payments needs.
     BCH said in its statement that its external position remains solid, despite the drop in family remittances, with net international reserves of US$6.122 billion as of May 5 as compared with $5.764 billion on Jan. 31.
     The decline in demand and the fall in fuel prices is also expected to lead to slower inflation this year although a temporary rise in food prices will partially offset some of the decline.
     In April inflation was 3.33 percent, down from 3.88 percent in March and below the central bank's tolerance range of 4.0 percent, plus/minus 1 percentage point.
     In March BCH forecast inflation of around 4.0 percent by the end of this year and in 2021.


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