Intervention in the Stock Market

Arguing that there is a temporary need for liquidity in colons, on October 26 the Central Bank of Costa Rica decided to participate in the secondary market by buying two different series from the Ministry of Finance, with a maturity of 9 and 10 years.

Wednesday, October 28, 2020

On April 13, 2020, the Board of Directors of the Central Bank of Costa Rica (BCCR) authorized its Administration to participate in the secondary securities market of the Ministry of Finance and defined the conditions under which these transactions would be executed, with the objective of mitigating situations of systemic tension caused by temporary liquidity needs in colones, informed the monetary authority.

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An official statement highlights that on October 26th the Central Bank carried out purchases in the secondary market of two different series of the Ministry of Finance, for an accumulated amount of ₡1,678 million (21% of the total negotiated in the secondary market that day), with a term to maturity between 9 and 10 years. With this action, the BCCR sought to prevent certain pressures that were beginning to be observed in that sector of the curve from affecting the behavior of other instruments and impacting the rest of the market.

Jose Rafael Brenes, general manager of the National Stock Exchange, explained to Nacion.com that "... the amount acquired by the government is small, representing less than 2% of what the entity grants to entities that require resources in another market called the Integrated Liquidity Market."

With the purchase made by the monetary authority, a tool was activated that serves to maintain financial stability. For Brenes "... the objective of the Central Bank is not to guarantee a price level for the bonds, but that the adjustments are ordered."

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