Costa Rica: Farewell to Exchange Rate Bands

"The exchange rate bands are completely irrelevant for making economic decisions and the formation of expectations among economic agents."

Wednesday, August 27, 2014

From 'Pulso Bursátil', a blog by Aldesa:

Costa Rica: Facing a Managed Float?

The volatility of the exchange rate (measured by the standard deviation of 15 days MONEX) is at the lowest level of the year and similar to the levels recorded in December 2013, when the exchange rate was quoted at the "floor" exchange rate bands.

Volatility peaked in ₡ 13.07 on 10 March, and from that point has dropped to the current level of ₡ 0.57. The only decrease was observed during the first days of July, when there was an increase from ₡ 1 colón to ₡ 4.85.

Just since July, and the change in the treatment of purchases of Public Sector Banking and effect, observed daily adjustments in the value of the dollar have been minimized.

As for the new scheme, in the days before the payment of the first half of August, the Central Bank of Costa Rica (BCCR) was observed to accelerate their purchases MONEX, thereby reducing the lag between currencies that sells to the Public Sector and which MONEX purchase. Such a lag is currently around $ 20 million.

As he had learned from Central, purchases or sales that take place in MONEX would be coordinated with the "seasonality" observed market windows.

Indeed, in the days before the payment of the first half was seen in the windows of banks excess dollars selling for close to $ 35 million.

For most of this year, for practical purposes, we can say that the exchange rate is operating under a system of "managed float" where the exchange rate band, currently located in ₡ 500.00 and ₡ 844.00, are completely irrelevant in making economic decisions and the formation of expectations among economic agents, and the rules of engagement BCCR has to define the range of fluctuations in the exchange rate.

We hope that in the coming months the current dynamic is maintained and that the public sector will be more surplus of dollars, compared to greater use of the foreign exchange earned by the last external bond issues Costa Rica for $ 1,000 million.



More on this topic

Costa Rica: Intervention in the Foreign Exchange Market

November 2019

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.

Costa Rica: Dollar Price Falls 3% in a Month

July 2014

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.

Dollar in Costa Rica: Wholesale Market Participants Excluded

June 2014

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.

Dollar Keeps Rising in Costa Rica

March 2014

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.