Central Bank eases monetary policy stance further in November

Central Bank opts for another quarter-point cut: At its last meeting of 2024 on 27 November, the Monetary Board of the Central Bank of Guatemala (Banguat) unanimously decided to cut the key policy rate by 25 basis points to 4.50%. The move mirrored September’s decision and marked the second consecutive cut in the current loosening cycle.

Below-target inflation drives further monetary policy loosening: November’s cut chiefly reflected softer price pressures, which dipped below the lower limit of the Bank’s 3.0–5.0% target range in September–October. Moreover, the Bank noted that risks to the inflation outlook for 2024–2025 remain balanced. Meanwhile, the U.S. Fed’s cut on 7 November likely added further impetus to the move to minimize exchange rate fluctuations. Lastly, Banguat noted that economic activity continued to expand at a pace consistent with its projections for 2024 and 2025, likely reducing the need for a larger-sized cut.

Further reductions in store for 2025: In its communiqué, Banguat did not include explicit forward guidance but reiterated its commitment to anchoring inflation within the target range. Our panelists have penciled in 125 basis points of further reductions in 2025 as inflation settles close to the midpoint of its target range. That said, commodity price spikes, softer monetary policy easing in the U.S. and lower-than-expected GDP growth are upside risks to the policy rate. The Bank will reconvene next year.

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