Guatemala: Central Bank holds fire in March
Central Bank extends the pause in its loosening cycle: At its meeting on 26 March, the Monetary Board of the Central Bank of Guatemala (Banguat) unanimously decided to hold its key policy rate at 4.50%. The decision mirrored February’s and followed a cumulative 50 basis points of cuts since September 2024.
Global economic uncertainty and robust economic activity at home dissuade further easing: The Bank noted that price pressures remained below the lower bound of its 3.0–5.0% target range for the sixth straight month in February. Still, Banguat opted against cutting, partly because it expects inflation to rise toward the midpoint of its target band through the end of 2025. Regarding activity, the Bank assessed that economic activity has performed in a manner congruent with its 2025 GDP growth forecast of 3.0–5.0%; however, policymakers highlighted significant uncertainty regarding the economic outlook, particularly concerning U.S. immigration and tariff policy. Together, these factors likely added pressure on the Bank to stand pat. Meanwhile, the Fed held rates unchanged in March, which will have added impetus to Banguat’s decision, with it looking to minimize exchange rate fluctuations.
Easing to resume later in 2025, but upside risks to rates loom: The Bank’s communiqué offered no explicit forward guidance. Our Consensus is for inflation and economic growth to average close to the lower bound of the Bank’s target and forecast range, respectively. As a result, our panelists see scope for Banguat to resume easing its stance this year, penciling in 100–125 basis points of reductions by the end of the year. That said, risks are tilted towards fewer-than-expected cuts as markets continue to pare back their expectations on interest rate reduction in the U.S. The Bank will reconvene on 30 April.
Panelist insight: EIU analysts weighed in:
“We expect Banguat to resume rate cuts in the second half of the year and continue gradual easing, reaching a terminal level of 2.75% by early 2027. […] Guatemala’s low level of financial intermediation reduces the influence of interest-rate pass-through, and changes in local and global financing conditions influence economic performance. Mr Trump’s tariffs and anti-immigration plans could stoke inflationary pressures in the US and prompt the Fed to keep interest rates higher for longer there, limiting the scope for further monetary easing in Guatemala as well.”