Central Bank cuts rates in August

Monetary policy easing resumes in August: On 27 August, the Bank of Guatemala (Banguat) opted to cut its key interest rate by 25 basis points to 4.25%—the joint-lowest level since December 2022—from 4.50%, where it had stood since November 2024.

Tamed inflation drives cut: The decision to cut rates was primarily due to muted inflation, which remained below the floor of Banguat’s 3.0–5.0% target range through July. Moreover, Banguat now sees 2025 inflation below the lower bound of its target range and 2026 inflation slightly below the midpoint of its target range. Meanwhile, the Bank noted economic activity remains upbeat, though risks are skewed to the downside due to the volatile external environment; hence, the rate cut will have been aimed at further stimulating activity.

Panelists expect further cuts by year-end: While the latest communiqué provided no explicit forward guidance regarding future decisions, our panelists expect interest rates to end the year 25–75 basis points below their current level. The Fed extending its monetary easing pause poses upside risks to interest rates, while lower-than-expected economic growth in Guatemala tied to evolving U.S. trade and immigration policy poses a downside risk. The Bank will reconvene on 24 September.

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