The effects of the pandemic and fiscal uncertainty are the factors that explain the rise in the price of the US currency in Costa Rica against the Colon, which on November 4 was quoted at 614.55 colons to the dollar.
According to the figures of the Central Bank of Costa Rica (BCCR), between October 19 and November 4 the selling price of the dollar has shot up, rising from ₡605.24 to ₡614.55, which is equivalent to a 2% variation.
With the aim of cushioning the fall in the price of the dollar, which between November 5 and 25 was reduced in ₡18,35, in just two days the Central Bank intervened buying more than $30 million.
Of the $41.5 million negotiated at Monex during the November 22 session, the Central Bank of Costa Rica (BCCR) purchased $36 million, and of the $30.7 million negotiated on November 25, the monetary authority acquired $27 million.
In Costa Rica, it is expected that the downward trend that has been showing the exchange rate since February will intensify in the coming months, when the $3.580 million begins to enter as a result of the issuance of Eurobonds and loans granted by external entities.
According to data from the Central Bank of Costa Rica (BCCR), between the beginning of February and July 30 of this year, there has been a fall of up to 44 colones per dollar, reporting a drop in the average rate in the wholesale market Monex from ¢613.87 to ¢570.13.
With the purpose of "reducing pressures in the exchange market," the Central Bank of Costa Rica increased the interest rates of its term deposits as of November 7th.
With this increase in the interest rates of the Central Bank's deposit instruments, which is added to the one made last week, the entity seeks to foster savings in colones, particularly in instruments with longer terms.
The central bank chief said that if conditions are right, it could "migrate" to a managed floating exchange rate system.
After taking measures such as eliminating purchases by the non-financial public sector in the Monex wholesale market and intervening in the market to minimize volatility and increase stability in the exchange rate, Olivier Castro, president of the Central Bank, "..
In the last 30 days the price of the dollar against the Colon went from 557 colones to 540.4 colones in the Monex wholesale market.
The decision to remove the non-fiinancial public entities from the wholesale market and less demand for foreign currency in recent weeks are the reasons for the drop of 17 colones in the price of the dollar.
"... The non-bank public sector stopped purchasing foreign exchange in Monex on 11 June.
In an attempt to limit exchange rate volatility, the Central Bank has determined that non-bank public companies can no longer trade currencies in the Monex wholesale market.
As explained by the entity, the foreign exchange requirements of the Non Banking Public Sector will not be served directly by the BCCR using international reserves.
From a press release by the Central Bank of Costa Rica:
A reduced demand for dollars by the nonfinancial public sector could be the reason behind the reduction of 7.5 colones in the price of the US dollar this week.
Since the last central bank intervention in the wholesale foreign exchange market on June 10, the dollar has shown a downward trend, being quoted at ¢ 546.47 per dollar at the close of June 20.
A proliferation of articles, reviews and editorials on the exchange rate is the best example of the prevailing concern in a market waiting for a clear definition of the exchange rate policy by the Central Bank.
Editorial
In recent weeks, and while the President of the Central Bank of Costa Rica (BCCR) is denying it , warnings have been given over interventions in the foreign exchange market by the monetary authority.
From May 2013 to May 2014 the balance of deposits in dollars increased by 15%.
Up to May this year the balance of current accounts in dollars totaled $3.107 billion and in savings accounts $1.673 billion, 15% and 10% more than in May 2013, respectively. Moreover, certificates of fixed term deposits in foreign currency placed with financial institutions, cooperatives and the Central Government in May 2014 show an increase of 80% compared to the same month last year, according to a central bank report.
It has been noted that the Costa Rican Colon could depreciate 20% more against the dollar in the U.S. and with that correction the exchange rate will reach 650 colones per dollar during 2014.
The accelerated depreciation of the colon against the dollar in the first months of this year could continue throughout 2014. The Costa Rican Colon has room to continue to depreciate by a further 20% against the dollar, according to analysis of the real exchange rate of the Central Bank of Costa Rica.
The exchange rate in the wholesale market reached 558 colones per dollar, while at bank counters one dollar was being sold (on Wednesday March 5th) at 565 colones.
The price of the dollar in Costa Rica has not found an upper limit, trading at 565 colones per dollar at some bank counters, which is sixty colons more than earlier this year.
Although the Central Bank (BCCR) has intervened in the foreign exchange market to prevent the exchange rate from rising more and has publicly insisted that the devaluation of the colon will slow down, its behavior over the last few days seems to indicate otherwise.
The discretionality of interventions made by the central bank in the foreign exchange market could open the gate for unjust enrichment of those who have inside information.
EDITORIAL
In the best of democratic worlds, the intervention of public employees in the economy generates income transfers between the sectors within the economy, according to state policies that are largely accepted by the population.
After the strong rebound experienced on Wednesday 29, the dollar has stabilized in the exchange market.
From a statement by the Central Bank of Costa Rica:
Today, January 30, 2014, the exchange rate of the U.S. dollar in the Foreign Currency Market (Monex) opened with quotes of ¢519 and has shown a downward trend. At 2:00 pm today the average price was ¢514.64 per dollar with a negotiated amount of $4.5 million, which corresponds to a relatively normal amount for the advance of the session.
Costa Rica: the problem is international rates, the exchange rate, the fault of the hot capital, state banks ...
EDITORIAL: As in the illegal street scam known as the ‘shell game’ (three shells/cups/thimbles placed upside down move around while a person guesses under which one the ball is hidden – in the end it is not under any of them), government officials, economists and analysts of all types, are pontificating on whether the ball of the solution to the serious monetary and currency problem in Costa Rica is under one or other of the various vessels that move quickly inciting the innocent to bet on which one it is hidden under.