From 2022 till date, the central bank has already injected a sum of US$397.1 million into banks through the temporary liquidity mechanism for providing US currencies. This allocation falls within the authorized annual cap of US$500 million.
The monetary authorities approved this measure to ensure that banks can directly access dollars through repo operations (short-term transactions) at flexible rates based on market prices. Treasury bonds in quetzales or dollars are required as collateral in these operations, enabling banks to cope with high volatility in the exchange rate or apparent scarcity of currency.
The temporary mechanism to provide United States dollars to banking entities was authorized by the Monetary Board (JM) and became operational in December 2022. So far, requests have been made for a total of US$397.1 million.
According to the breakdown released by the Banco de Guatemala (Banguat), operations worth US$301.7 million were conducted in 2022, leaving US$198.3 million of the authorized amount of US$500 million still available. In 2023, an additional US$95.4 million has been utilized.
The Behavior of the Dollar
In a press conference held on Monday, June 12 at the National Palace of Culture, Álvaro González Ricci, the President of the JM and Banguat, discussed the recent performance of the exchange rate. On Tuesday, the exchange rate stood at Q7.83 for US$1, reflecting a slight appreciation of the US currency. González Ricci emphasized that the central bank does not intervene in the exchange rate trend but focuses on moderating volatility caused by various factors.
He gave an example where a bank has to fulfill a substantial line of credit or where one or two banking entities, which handle a significant flow of family remittances, hold onto the dollars they receive instead of putting them into the market. This situation can result in a temporary scarcity of dollars and thereby lead to an increase in the exchange rate. However, González Ricci highlighted that the current exchange rate is not unusual, as it has remained within a range of +/- 1.5% in recent years. Therefore, an average level of Q7.83 should not cause any alarm.
Participation in the Exchange Market
González Ricci also mentioned the central bank’s participation in the exchange market. With recent changes in the Monetary Policy, the Banguat is now allowed to conduct up to five auctions of US$20 million each day. This means that the central bank can engage in buying or selling of dollars up to a total of US$100 million per day. Previously, the maximum limit was five auctions of Q10 million, totaling US$50 million.
González Ricci explained that the reduction in participation is due to the exchange rate being more stable and the banks requiring fewer dollars. However, he insisted that the Guatemalan market is limited and small. Therefore, if a bank needs US$100 million, it would lead to a shortage and subsequently increase the exchange rate.
To facilitate the negotiation of repos in dollars, the interest rate has been lowered. This ensures that entities in need of dollars do not have to resort to raising the exchange rate in the system. Instead, they can approach the central bank and offer their own treasury bonds as collateral.
Trend for the Second Half of the Year
Although it is challenging to predict, the President of the central bank stated that the price of the dollar is expected to remain stable in the second half of the year. The official average rate ranges from Q7.78 to Q7.80. However, he clarified that the reference exchange rate provided by the Banguat may slightly differ from the actual rates at the window, depending on various factors such as the bank, the transaction amounts, and the customer’s relationship with the bank.