Guatemala's monetary authorities have once again taken a decisive step to support economic stability and guide inflation towards its target. In a recent unanimous decision, the Monetary Board opted to reduce the benchmark policy interest rate from 4.00% to 3.75%, signaling confidence in the nation's economic trajectory amidst a nuanced global backdrop. This move, announced by the Banco de Guatemala, follows a thorough analysis of both internal and external economic conditions and the inflation risk balance.
Global Economic Context and Influences
The decision to lower the rate was informed by a comprehensive analysis of international economic conditions, which indicate a positive outlook for global activity in 2025 and 2026. This optimism is primarily sustained by dynamic world trade and improved financial conditions, partly due to policy interest rate reductions in major economies, including the United States. While acknowledging persistent trade and geopolitical tensions as potential downside risks, the Board noted a general moderation in international inflation throughout the year. Furthermore, the sustained lower international oil prices have had a favorable effect on inflation within Guatemala.
Robust Domestic Performance and Proactive Inflation Management
Internally, Guatemala's economic indicators paint a healthy picture. Most short-term activity metrics, such as the economic activity index, family remittances, foreign trade, and private sector credit, are performing consistently with the projected annual GDP growth for 2025 and 2026. Although some downside risks persist, these have somewhat eased following a recent trade agreement with the U.S. government. Crucially, Guatemala's inflation rate has continuously remained below the lower limit of the Monetary Board's target (4.0% +/- 1 percentage point), largely due to the dissipation of supply-side pressures from certain food items and lower fuel prices. Forecasts from the Banco de Guatemala indicate that inflation is expected to remain below the target's lower bound in 2025 and below its central value in 2026. Consequently, the Monetary Board decided to reduce the policy interest rate again, aiming to anchor inflation expectations and ensure that the future trajectory of inflation converges towards the medium-term central target. The Board reiterated its commitment to adopting all necessary measures to maintain inflation within the established target, continuously monitoring key economic indicators, both domestic and external, that could impact price levels and inflation expectations.
