The Central Bank of Costa Rica and the Exchange Rate

The monetary authority explains the procedure for defining interventions in the exchange market, without disclosing specific criteria.

Tuesday, February 18, 2014

From a communiqué by the Central Bank of Costa Rica:

EXCHANGE INTERVENTION BY THE CENTRAL BANK DUE TO VIOLENT EXCHANGE RATE FLUCTUATIONS

Regarding interventions carried out by the Central Bank of Costa Rica (BCCR) within the exchange rate band in order to avoid violent fluctuations in the daily exchange rate, the following should be noted.
Violent changes in the exchange rate leads to abrupt movements in prices, costs and income, increasing the degree of uncertainty about these and other variables, which is detrimental to the welfare of Costa Rican society. For these reasons, the Board of the BCCR, in exercise of the powers conferred by the Organic Act of 1995, determined that the Bank will intervene when the exchange rate varies in a proportion which has been predefined as a violent fluctuation within the same session wholesale exchange market (Monex).

When the fluctuation is upwards, the BCCR sells dollars from its international reserves to prevent the exchange rate continuing to rise that day and simultaneously suspends buying dollars, whether they be for the public sector or to increase reserves.

When the violent fluctuation is downwards, the central bank will buy dollars in order to keep the exchange rate from falling further that day and will suspend sales of dollars from the public sector.



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