Guatemala accelerates hikes while Dominican Republic pauses

Guatemala: The Guatemalan central bank’s monetary board unanimously voted to raise the country’s policy rate by 75 basis points, to 3.75%, on November 30.

The move is the largest of the central bank’s five rate hikes this year, which together total 200bp. The Bank of Guatemala board said inflation rose more quickly in October than in previous months.

The decision marks the first rate increase under governor Álvaro Gonzalez Ricci, who began a four-year term on October 1. He presides over the eight-member monetary board, which includes three ministers and four external members.

External inflationary pressures were now producing “second-round effects”, the board’s statement said. It said these are in turn generating “significant increases in inflation forecasts and expectations for 2022 and 2023”.

Year-on-year inflation was 9.7% in October, up from 9% in September, according to figures provided by the central bank. Its inflation target is 4%, with a 1% tolerance band.

The board said the Guatemalan economy remained “dynamic”, but that the outlook for the global economy was pessimistic.

Dominican Republic: The Dominican Republic’s central bank announced a pause in its monetary tightening cycle, which began in November 2021.

The monetary board held the rate at 8.5%, 550 basis points above its pandemic low, after raising it 10 times in its last 12 meetings. The board said in its policy statement that both headline and core inflation were falling.

Headline inflation has fallen from 9.6% to 8.2% between April and October, and core inflation fell from 7.3% in May to 6.9% in October.

The board said the current policy rate would ensure inflation converges towards its target range before the end of the first half of 2023. The central bank has an inflation target of 4% within a band of one percentage point.

In its last statement on October 31, announcing a 25bp hike, the board indicated it might halt its tightening cycle.

The central bank noted the strong performance of the Dominican economy, which it said had grown 5.2% over the first three quarters of the year. It cited forecasts projecting 5% growth for 2023.

The board said “the Dominican economy finds itself in a good position to continue confronting the challenging international environment”.