Friday, March 27, 2009

JM Lowers Interest Rate

The Monetary Board (Junta Monetaria) decided to reduce the prime interest rate that serves as a control against inflation. The rate was reduced by 25 basis points and stands now 6.25 percent, which encourages banks to provide more loans.

Inflation rate has dropped from 7.88 percent in January to 6.50 percent in February, which implies a decline in the rate of increase of prices of goods and services. The index measuring economic activity (IMAE) has also declined. Those were some of the reasons the JM chose to lower the prime rate.

This is the fourth time this year that the JM has reduced the rate, each time by 25 basis points. Last December the rate stood at 7.25 percent. The reduction so far in 2009 is 100 basis points.

The function of the prime interest rate is to control money leaving or entering the economy. It is the seven day rate paid by banks.

When inflation rises, the rate is increased so that banks prefer to keep their money in the Bank of Guatemala (Banguat), rather than in loans.

The last time the rate was at 6.25 percent was on November 28, 2007, but at that time the trend was upward because food and fuel prices had increased at the international level.

No comments:

Post a Comment