Central Bank Governor Explains Exchange Rate and Inflation

Kareem Michael

The Central Bank of Belize met with reporters this morning for the first of several press conferences to be held regularly in the coming months.  Similar to what the Statistical Institute of Belize has been doing, the regulator has opted to apprise the public of activities taking place in the financial sector.  Earlier today, Central Bank Governor Kareem Michael touched on a number of topics, including the state of the economy, as well as Belize’s monetary stability.  In respect of the latter, he began by explaining the exchange rate in the context of inflation.

Kareem Michael, Governor, Central Bank of Belize

“What the exchange rate does is simply protect the purchasing power which you have in your pockets.  That purchasing power is simply two Belize dollars to one US dollar.  I will not get into some of the technicalities of why the exchange rate guards us against inflation, but I will let the charts sort of speak for themselves.  So, for the past thirty years, and I’ve only shown twenty-three here, Belize’s average inflation has roughly been around 1.3%.  This is the solid red line across.  The black line shows the movements on an annual basis.  There have been two periods where you can say that inflation has peaked out of normal bounds, that is in 2008, 6.4% and in 2022, 6.3%.  Starting with the first one, you will know that this is an external shock, the conflicts, geopolitical tensions and that sort of thing, and I think we are all familiar with that story.  Similar case in 2008, right after the global financial crisis, there was a shock again to fuel prices and that’s what resulted in that 6.4% that you see.  Now we’re functioning under a pegged exchange rate.  On the right hand side, Belize, again, is represented by that solid red line.  We have as comparison, Barbados, Jamaica, Trinidad & Tobago and the Latin five which includes Brazil, Chile, Columbia, Mexico, and Peru.  Out of the Caribbean islands, only Bahamas is a pegged exchange rate like Belize.  Belize outperforms all of these in terms of inflation, and that, again, is largely as a result of the stability or anchoring our exchange to the US dollar at a two-to-one.”