An overview of the effects of monetary policy in Guatemala on GDP and inflation, from 1981 to the present day.
% annual growth rate:
Sources: M2 from Banco de Guatemala and IMF databases and nominal GDP from IMF database, as at August 2022
The medium-term relationship between money and nominal GDP growth in Guatemala, 1981-2022
Five-year moving averages of annual % changes, with 1983 being the start of the first five-year period
Comment on monetary trends in Guatemala
Guatemala has suffered from several periods of political instability, including a 36-year old civil war which only ended in 1996. Since then, the country has substantially liberalised and privatised its economy (notably telecommunications and electricity) , although it remains heavily dependent on agricultural exports including coffee, bananas and sugar.
Guatemala's central bank, the Banco de Guatemala (or Banguat for short), was established in 1945. It is independent of the government and responsible for monetary policy. Its mission is "To promote the stability in the general level of prices." Although inflation frequently rose above 10% in the 1990s and again, prior to the Great Recession of 2008, the central bank has successfully kept the figure below 10% for over a decade since then. Indeed, the current official target of 4% has usually been achieved in recent years. Banguat is also strictly prohibited from financing government spending directly or indirectly. Thanks to the discipline shown by the central bank, along with its sound monetary policy, the country's economy has been remarkably stable during this period, recording steady growth throughout.
Guatemala's national currency, the Quetzal, is named after the country's national bird. it was pegged to the US dollar until 1987 but now it is a managed floating currency - in other words, there is no peg to any other currency but the central bank has the option of intervening in the foreign exchange markets to affect the value of the currency to meet specific macroeconomic objectives. The Banco de Guatemala's management of the currency has been effective in maintaining the stability of the country's economy and shows again that monetary stability is the best recipe for moderate prices and macroeconomic stability. However, this has not as yet been accompanied by a substantial increase in living standards. Guatemala remains one of the poorest countries in Latin America.
The Institute wishes to acknowledge the help of Alejandro Mejia in the creation of this page.