Expectation for Changes in Monetary Policy

Although the downward adjustments made months ago in the bank reserve and monetary policy rate do not yet appear to have had an effect on the loan portfolio in Costa Rica, banks expect credit to be reactivated soon.

Monday, September 16, 2019

At the beginning of June, the Central Bank reduced from 15% to 12% the minimum legal reserve rate that banks must maintain as a reserve, arguing that the objective was to make credit more dynamic.

Another of the changes made by the Central Bank in its policies is reflected in the reductions in the Monetary Policy Rate, since from March to July 2019 the monetary authority lowered it four times, from 5.25% to 4%.

Amedeo Gaggion Azuola, Scotiabank's Treasury Director for Central America, told Nacion.com that "... the main result of the measures has been a decrease in interest rates in colones. It is too early to expect immediate changes in credit behavior, however, the decrease in the rate will have positive effects on the reactivation of credit.

Regarding changes in the rate in colones, the latest report from the Central Bank of Costa Rica (BCCR) details that the Basic Passive Rate increased by 0.05%, and will remain at 5.75% until next September 18.

Rossy Duran, corporate finance manager of the Bank of Costa Rica, said that "... In general, we have not seen a significant increase in credit, because of lower expectations and consumer confidence in the evolution of economic activity, which causes a reduction in demand, despite the fact that there are resources available to be lent to different productive sectors."

In the last economic situation report up to August 2019, the Central Bank reported that in that month the credit to the private sector reported a 1.6% year-on-year variation, growth that is far from the 4.4% reported in the same period of 2018.

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More on this topic

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.

Costa Rica: Monetary Policy Rate Drops to 2.25%

January 2020

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%.

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).

Credit Does Not Rebound, Even With Lower Rates

November 2019

Although The Central Bank has been reducing the monetary policy rate to boost the issuance of bank credit, the speed with which the portfolio of loans in national currency grows continues to decrease.

Official data from the country's financial system indicate that by October 2017 the portfolio of loans in local currency grew to 14%, in the same month of 2018 the rate fell to 6% and by the tenth month of 2019 the increase was just 4%.

Costa Rica: Macroeconomic Program 2015-2016  

February 2015

If one thing the current authorities of the Central Bank have stated clear is the concern about the stability of all macroeconomic variables, starting with the exchange rate.  

From analysis given in a blog by Aldesa, Pulso Bursatil:

Since the review of the Macroeconomic Program 2013, where the Central Bank of Costa Rica (BCCR) decided to remove the controversial cap on credit growth, a document of this type has not been presented, with so many changes and announcements of importance to the Costa Rican economy, as presented on Saturday.