Strong Dollar Income to Press Exchange Rate

In Costa Rica, it is expected that the downward trend that has been showing the exchange rate since February will intensify in the coming months, when the $3.580 million begins to enter as a result of the issuance of Eurobonds and loans granted by external entities.

Tuesday, July 30, 2019

According to data from the Central Bank of Costa Rica (BCCR), between the beginning of February and July 30 of this year, there has been a fall of up to 44 colones per dollar, reporting a drop in the average rate in the wholesale market Monex from ¢613.87 to ¢570.13.

The BCCR specifies that during the last months of July, at bank counters, the selling exchange rate has been quoted between ¢577 and ¢584 per dollar.

See "Concern over Dollar Price Decline

In addition to this downward trend, in the next few months a considerable amount of foreign exchange will come in, as the government will receive $1.5 billion from the issuance of Eurobonds and $2.08 billion from budget support loans.

Rodrigo Cubero, president of the BCCR, told that "... a good part of the resources in dollars that come from abroad will come out later, because the Government has to face domestic and foreign debt payments in dollars. Another party may have to "colonize" - become colonists - in order to face payments or obligations in national currency."

Regarding the actions that the BCCR can take to avoid abrupt fluctuations, Cubero pointed out that "... the entity could do several things. One of them is to accumulate the dollars because those operations have an expiration date and the government will have to face its repayment needs in the future. So the Central Bank can act as an impact mitigator on the exchange rate of those movements."

Another option would be for the Central Bank to use them to meet its own needs. For example, the bank received a loan from the Latin American Reserve Fund (FLAR) in March 2018. That credit is already being repaid in quarterly packages of $125 million, according to the head of the BCCR.

This situation was predicted months ago by the country's business sector, when exporters asked the Central Bank to "avoid distortions in the fixing of the exchange rate because of the oversupply of dollars from the sources of financing for the fiscal deficit."

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