Costa Rica: Monetary Policy Rate Drops to 2.25%

Arguing that in 2020 and 2021 inflation is expected to remain within the target range, although below its average value of 3%, the Central Bank reduced the monetary policy rate from 2.75% to 2.25%.

Friday, January 31, 2020

Over the next two years, the central bank's monetary policy will continue to be aimed at keeping inflation low and stable and supporting economic activity, in line with the counter-cyclical stance it adopted from March 2019, reported the Central Bank of Costa Rica (BCCR).

From the BCCR report:

The forecast models of the Central Bank project that in the 2020-2021 period general and subjacent inflation will remain contained in the target range, although below its average value (3%). This confirms that there is space and justification to continue with the cycle of relaxation of the monetary policy. Based on this, the Board of Directors of the Central Bank, in the same session in which it approved the Macroeconomic Program, agreed to reduce the Monetary Policy Rate (MPR) by 50 base points (b.p.), to place it at 2.25%, effective as of January 30, 2020.

Over the next two years, the central bank's monetary policy will continue to be aimed at keeping inflation low and stable and supporting economic activity, along the lines of the counter-cyclical stance it adopted from March 2019. In other words, monetary policy has been geared towards stimulating credit conditions and economic recovery (based on Article 2 of the Central Bank's Organic Law), without jeopardizing (and, rather, seeking to underpin) its primary objective of maintaining low and stable inflation.

In this context, as of the end of March 2019, the Central Bank reduced the HWT on seven occasions, for a cumulative 250 b.p. At the end of the year, the HWT stood at 2.75%. In addition, as of June, it reduced the minimum legal reserve requirement and the liquidity reserve requirement for operations in domestic currency from 15% to 12%.

Although the delay with which monetary policy impacts economic activity and inflation tends to be more than a year, so far the transmission of the Central Bank's monetary policy easing measures to market interest rates has been very limited. A large part of the resources from the reduction in the minimum legal reserve are deposited in the Integrated Liquidity Market (MIL).

See full report (in Spanish).

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Monetary Policy Rate Decreases: Have They Worked?

March 2020

For the Central Bank of Costa Rica, the constant reductions in the Monetary Policy Rate that have taken place since March 2019 have been gradually and incompletely transferred to the interest rates of the financial system.

At the end of January this year was the last reduction of the monetary policy rate, in this case from 2.75% to 2.25%. For this occasion, the Central Bank argued that the drop was made because by 2020 and 2021 inflation is expected to remain within the target range.

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Arguing that deflationary forces persist and that a low rate of economic activity is reported, the Central Bank decided to reduce the Monetary Policy Rate to 4.50%.

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Honduras: Monetary Policy Rate Lowered to 5.75%

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The Central Bank has reduced the benchmark rate by 50 basis points as a result of stable performance shown by the economy.

The Board of the Central Bank of Honduras reduced, from 28 March 2016, the monetary policy rate by 50 basis points, fixing it at 5.75%.

From a statement issued by the Central Bank:

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