Honduras holds rate, inflation seen in tolerance range

     The Central Bank of Honduras left its monetary policy rate steady at 5.75 percent, saying inflation is expected to remain within the bank's tolerance range by the end of this year and then converge to its middle point by the end of 2020.
     Inflation in Honduras eased for the second consecutive month to 4.69 percent in July from to 4.8 percent in June and 5.14 percent in May to within the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
      In a statement issued on Aug. 9, following a meeting of the open market commission on Aug.5, the bank added core inflation also slowed from the previous two months, partly due to the lower impact of indirect changes in residential electricity rates.
     Domestic economic activity continued to slow in June, according to the monthly IMAE index, mainly due to a moderation of growth in the manufacturing industry which was partly offset by a good performance by the financial intermediation and telecommunications sector.
     As of July 31, Honduras' net international reserves eased to $5.068.3 billion, or the equivalent of 5.08 months of imports, from $5.071.6 billion on June 12, but were up $200 million on an annual basis due to higher remittances and the lower cost of imports, the bank said.
     Last month the International Monetary Fund (IMF) forecast inflation in Honduras would end this year at 4.4 percent and then ease to 4.2 percent by the end of 2020 while the outlook remains subject to downside risks from lower global growth, terms of trade shocks, tighter global financial conditions and uncertainties from trade tensions and U.S. immigration policies.
     The IMF's executive board, which in July approved a 2-year standby credit facility for Honduras, commended authorities' recent measures to modernize the central bank's policy framework and make the exchange rate regime more flexible by reducing foreign exchange surrender requirements.
     The IMF also encouraged the central bank to gradually move toward exchange rate flexibility and efforts to strengthen the bank's operational autonomy and governance with a view toward transitioning to inflation targeting.
     The IMF forecast economic growth in Honduras this year of 3.4 percent, down from an estimated 3.7 percent last year, and 3.5 percent in 2020.
     The Honduran lempira trades around 24.5 to the U.S. dollar and has gradually depreciated in recent years.

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