Currency Appreciation in Costa Rica

While interest rates for local currency remains at current levels, dollars will continue to enter the Costa Rican economy, which will prevent its devaluation.

Monday, October 8, 2012

Analysts believe that in Costa Rica the exchange rate will remain near 500 colones per dollar at least until 2015. The establishment of this date is subject to announcements from the Federal Reserve of the United States, which can predict that in that country expansionary monetary policies will remain in place until that year.

The group most affected by the appreciation of the Colón, Costa Rican exporters, will have adapted to the level of the exchange rate, having built that appreciation into their cost structures and pricing.

However, not all export sectors have it taken the same way, and there is concern about the extension of time for appreciation of Colon, which has already had significant impact on sectors such as small agricultural exporters, especially those whose products have not seen increases in their prices in international markets.

More on this topic

Strong BCCR Intervention to Maintain Exchange Rate  

September 2013

The Central Bank of Costa Rica has purchased $57 million in the wholesale market to keep the exchange rate from falling below ¢500 per dollar.

The operation is the second largest so far in 2013, after January 9, when the institution was forced to buy $78 million, and the first since August 19.

The Effects of the Exchange Rate Flexibility

January 2013

The latest announcements in Costa Rica about greater exchange rate flexibility to appreciate the colon are worrying exporters.

An article on reported that "Late last year, the president of Costa Rica’s Central Bank (BCCR) Rodrigo Bolaños announced that the monetary authority will continue the transition announced in 2006 seeking to lead the country towards greater exchange rate flexibility consistent with the full adoption of inflation targeting."

Costa Rica´s Choice: Low Dollar or High Inflation

November 2010

The loss of competitiveness in exports and tourism generates unemployment, but intervening in the exchange rate will generate inflation.

There seems no good solution to the problem Costa Rica has with the appreciation of its currency, which has meant a loss of competitiveness of its exports, especially agricultural, by about 5% annually over the past 4 years.

Exporters Less Competitive Due to Colon Appreciation

May 2010

CINDE stated that the increase in the value of the Costa Rican colon versus the U.S. dollar is negatively affecting the country’s exporters and diverting foreign direct investment.

Alberto Trejos, president of the Costa Rican Investment Promotion Agency (CINDE), stated that the recent strong increase in the price of the Costa Rican currency is making exporters less competitive.