Macroeconomic Forecast El Salvador

BMI View: The average bank lending rate in El Salvador came in at 6.4% in March, the lowest level since November 2004. With monetary policy in the US set to remain very loose throughout the remainder of 2011, we believe that the lending rate in the dollarised economy is on track to fall from an average of 7.6% in 2010 to 6.7% in 2011. That said, we see upside risks to this outlook, given that inflation surged from 2.7% y-o-y in February to 6.0% in March, squeezing real lending rates and banks' profitability. Should inflation remain elevated, we may upwardly revise our lending rate forecasts.

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