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Honduras Looks at Adjusting the Monetary Policy Rate

November 8, 2013 by samuel contreras No Comments

The reactivation of domestic production could be accelerated with an adjustment in the monetary policy rate (TPM – Tasa de Política Monetaria) which is more in line with the national reality, and would encourage investment by lowering interest.

The current TPM remains at 7.0%, where it has been since May of 2012, as part of measures to control inflation to the single digits, encourage savings, and safeguard the country’s external position, according to the Honduras Central Bank of Honduras’s (BCH – Banco Central de Honduras) Comportamiento de la Economía Hondureña (CHE).Honduras Monetary Policy Rate

Currently, Honduras has the highest TPM in the region, according to the Executive Secretariat of the Central American Monetary Council (SECMC – Secretaría Ejecutiva del Consejo Monetario Centroamericano), next is Guatemala, with a rate of 5.25%, Costa Rica follows, whose value has dropped to 4.0% in May, on the grounds that the economy showed slow growth, and finally El Salvador and Nicaragua, which have no defined TPM.

“The world economy is in recession. All the world’s central banks lowered their interest rates. The TPM on the U.S. Federal Reserve is close to zero (0.25%) since 2009, with the idea that this rate is consistent with the need to encourage investment and employment,” said Rafael Delgado, President of the CHE.

“They are not afraid of inflation, because this can only be generated when the capabilities of the country are being used at 100%; and now we are in a bad situation. A reduction in the TPM to have positive effects on market rates should not be in conflict with the other objective, which is to fight inflation,” he added.

For Delgado, the pace of price growth today is influenced by factors such as low yields, loss of crops due to climatic events or by difficulties in food imports.

Federico Álvarez, former President of the Central American Bank of Economic Integration (BCIE – Banco Centroamericano de Integración Económica) points out that the 7.0% TPM is a restrictive measure of the economy, considering that competitiveness remains the country compared to other Central American Nations.
“What the economy needs is reactivation. Today, (TPM) influence on the rate for commercial loans is extraordinarily high, and that’s going to make for more economic contraction. That restriction is killing the economy and every day there is less investment and less job creation,” he added.
The financial analyst explains that Honduras has an economy different than that of the rest of the Central American countries, in that it does not grow in the same way as Costa Rica, “because they stimulate economic growth”, or Nicaragua, “that although the Venezuelan aid has been trimmed, it has a large investment in growth.”
In the case of El Salvador, Álvarez contends that in comparison, there is none, since it possesses a dollarized economy.
According to the expert, among other reasons why the BCH keeps the TPM at 7.0% is to provide “a little” protection for the monetary reserves.

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