Honduras initially fixed its exchange rate to the USD within narrow margins, but this was accompanied by considerable elements of monetary policy. From 1985 there were dual or adjustable exchange rates while monetary policy gradually became more active and more operated through indirect instruments, with the eventual goal of inflation targeting, dependent on a range of reforms, set (but not yet achieved) towards the end of the period.
| Years | Targets and attainment | Classification |
| 1974-84 | exchange rate pegged to USD within narrow margins with relatively liberal forex arrangements; monetary policy instruments include rediscount facilities (involving some direction of credit), reserve and capital requirements, interest rate ceilings, credit and portfolio ceilings on banks, OMOs; monetary growth sometimes affected by fiscal deficits but mainly driven by (imprecisely controlled) credit to private sector; 1980s macro imbalances due to exogenous developments and loose domestic policies lead to fluctuating recourse to import restrictions; limited interest rate liberalisation; stabilisation efforts subject to repeated (fiscal and monetary) slippages; | augmented exchange rate fix AERF |
| 1985-2023 | 1985 secondary forex market (for transactions with rest of Central America at depreciated rate); 1988-90 rising inflation and growing spread between increasingly overvalued official and parallel forex rate leads eventually in late 1990 to exchange rate unification with large depreciation, some forex market liberalisation and mechanism for adjusting the rate in line with market conditions; renewed stabilisation efforts, still subject to slippages; interest rate liberalisation finally completed and more emphasis on OMOs, but reserve requirements remain very high; 1992 exchange rate floated with restrictions, some further forex market liberalisation partially reversed 1994 but increased 1996, with move to adjustable crawl with +/-5% (later 7%) bands via central bank-controlled auctions, actual rate initially at depreciated edge of band then from 1998 at appreciated edge; late 1990s OMO procedures and reserve requirements restructured; more emphasis on price stability as goal; 2005-10 exchange rate highly stable, monetary policy often inappropriately expansionary, repeated policy slippages; 2011 crawling exchange rate band reintroduced with previous auction arrangements, rate of crawl focused on competitiveness and mainly market-determined, not pre-announced; 2015 improvements to monetary arrangements; 2016 decision to adopt inflation targeting once a range of reforms has been implemented (with work started on domestic and forex interbank markets, central bank technical expertise and central bank independence), fiscal responsibility law passed; informal central bank inflation reference range missed 2016, attained 2017-21 but missed thereafter; 2020 Covid-19 and storms cut GDP but rapid recovery 2021; early 2022 exchange rate arrangement reclassified by IMF as ‘stabilised’; 2022 global food price rises; decision 2023 not to proceed towards formal inflation targeting, but to continue with (in principle) crawling exchange rate band | loosely structured discretion LSD |
Selected IMF references: RED 1974 pp44-6; RED 1979 pp41-2; SR 1980 p8; SR 1982 pp6, 9-10, 13-14; RED 1986 pp40-1; RED 1988 pp28-9; SR 1988 pp4-6; SR 1989 pp14-15; RED 1990 pp19-20, 36-8; SR 1990 pp11-13; RED 1992 pp19-20, 28; SR 1993 pp5-6, 9, 11; RED 1995 pp18, 21, 30-1, 32-5; SR 1995 pp9-10, 11-12; SR 1996 pp6-7, 8-12; SI 1998 pp30-2, 5-7; SR 1998 pp5, 10, 14-15; SI 2001 pp34-41; SR 2001 pp10, 18; SR 2003 pp19, 22; SR 2005 pp19-20; SR 2009 pp11, 15-16; SR 2013 pp18; SI 2014 pp2-3, 9; SR December 2015 p13; SR 2016 pp14, 16-17; Fifth and Sixth Reviews under SBA, October 2017 p13; SR 2018 pp14, 16; SR 2019 pp6, 18-19; SR 2023 pp7-8, 18-22, 69; SRIA 2023 p4.
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Monetary Policy Frameworks 