Pressure on Interest Rates

Because of the adjustments made by the Central Bank to interest rates in recent days, financial institutions in Costa Rica will be forced to raise interest rates on savings in local currency.

Friday, November 9, 2018

Arguing that forecasts suggest that inflation in 2019 could be above the upper limit of the target range, on November 1st the Central Bank of Costa Rica (BCCR) decided to raise the monetary policy rate from 5% to 5.25%.

On November 7th the BCCR increased the interest rates on its term deposits. In this case, the entity said that the objective is to promote savings in colones, particularly in longer-term instruments.

Against this backdrop in which the Central Bank raised its rates, explains Carlos Fernandez, former manager of the Bank of Costa Rica, that "... commercial banks cannot be static to movements in interest rates, because otherwise they lose liquidity, lose size, customers and competitiveness. This is because clients can move toward savings in dollars since with an annual devaluation rate of almost 10% and bank interest rates of 2%, they have an attractive return or toward investments in Central Bank colones."

Fernandez detailed that "... Banks are more careful with the increase in passive interest rates of capture, because they have two large additional financial costs. The minimum legal reserve cost of 15% (percentage of deposits that must be transferred to the Central Bank) and the interest tax'. However, if banks increase the passive interest rates of term deposits, they boost up the basic passive rate that affects credit debtors."

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More on this topic

Costa Rica: Banks Start Raising Interest Rates

June 2017

Entities have already registered increases in rates for loans and investments in local currency, adjusting to the increases that the Central Bank has made in the monetary policy rate and the rate for electronic deposits.

The increase has occurred in a generalized way in most of the interest rates offered by banks and financial institutions for loans and deposits in colones, days after the Central Bank raised the rate for deposits made through its electronic platform. 

Basic Interest Rate Reaches 8.5% in Costa Rica

January 2012

From today the basic passive rate (TBP in Spanish) rose half a percentage point to settle at 8.5%, a level not seen since May 2010.

"The increase was caused by higher deposit rates at state-owned banks, which are the entities that carry the most weight in the definition of the TBP.

Costa Rica: Basic Rate at 11.5%

January 2009

The half point drop effective from today, is the first for the year after two consecutive increases.

Elfinanciero.com reports: "The Basic Passive Rate is an average of the rates paid for investments by financial entities, the Ministry of Housing, and the Central Bank for terms of 150 and 210 days.

Basic interest rate lowered to 10% in Costa Rica

October 2008

After 12 consecutive increases since May, there was a reduction of 0.25% this week; the basic rate fell to 10%.

The basic passive rate is an average of the interest rates for savings in colones for terms of 150 days (5 months) and 210 days (7 months). It is used as a reference for loans.

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