Thursday, June 25, 2020

Guatemala cuts rate 3rd time in 2020 to boost growth

     Guatemala's central bank lowered its monetary policy rate for the third time this year, saying this is aimed at lowering the cost of credit for companies and households and thus help promote a recovery of economic activity.
     The Bank of Guatemala cut it policy rate by a further 25 basis points to 1.75 percent and has now cut it 100 points this year following two rate cuts in March.
     This includes a 50-basis-point cut on March 19 at an extraordinary board meeting, the same week when 46 other central banks, including the U.S. Federal Reserves,  lashed their rates in response to the global measures to prevent the spread of the Covid-19 pandemic.
     The bank's monetary board said in a statement released on June 25 that its policy decision, which was taken at its June 24 meeting, was unanimous.
     A significant slowdown in economic activity in Guatemala and imports has been partially moderated due to a better-than-expected performance of exports, family remittances and bank credit to the private sector, the central bank said, referring to the monthly index of economic activity (IMEA).
     However, the central bank still lowered its forecast for the economy to contract between 3.5 and 1.5 percent this year from its previous forecast of a contraction of 0.5 percent.
     In 2019 Guatemala's economy grew an estimated 3.8 percent.
     The economy should recover next year and expand between 2.0 and 4.0 percent, the bank added.
     Guatemala's inflation rate has been relatively steady in recent months - it eased to 1.8 percent in May from 1.88 percent in April - and the central bank said its latest forecast show a moderation this year and in 2021, with inflationary expectations anchored to its target.
     The Bank of Guatemala, which has targeted inflation since 2005, currently targets inflation of 4.0 percent, plus/minus 1 percentage point.
     Guatemala's quetzal has been relatively stable since October 2018 and was trading at 7.7 to the U.S. dollar today, unchanged since the start of this year.
     Earlier this month the executive board of the International Monetary Fund  approved emergency financial assistance to Guatemala of US$594 million to help meet some of the cost of containing Covid-19 at a time of a hit to economic growth and a drop in remittances from abroad and lower exports.


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