Uncertainty Forces Exchange Rate to Rise

The doubts generated by the fiscal proposal with which the Costa Rican government plans to discuss a loan with the IMF, would be the main cause of the recent upward trend in the dollar's price, which as of September 29 was quoted at ₡604,52.

Tuesday, September 29, 2020

The figures of the Central Bank of Costa Rica (BCCR) report an upward trend in recent days, since between September 11 and 29 the price has risen from ₡595,41 to ₡604,33, which is equivalent to a 2% variation. See full figures.

This rise occurs in the context of the announcement made by the Alvarado administration, when on the afternoon of September 17th and in the context of a severe economic crisis that had already been brewing since before the beginning of the pandemic, it presented the plan with which it intends to mitigate the fiscal impact that the Covid-19 crisis had, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a credit of $1,750 million.

The proposal to increase tax revenues consists of taxing financial transactions, increasing the tax on profits of businesses and individuals, and increasing the tax on real estate.

In addition to the seasonal nature, uncertainty has boosted the exchange rate, according to specialists. Rosy Duran, corporate finance manager of the Bank of Costa Rica, explained to Nacion.com that "... the uncertainty regarding the macroeconomic evolution of the country and the entry of resources from the IMF, the same effect of 2018 with the fiscal reform'. As additional factors, the constant decrease in the volume traded at Monex since the beginning of the pandemic and the lower supply of foreign currency in that market."

Vidal Villalobos, explained that currently there is "... additional demand for dollars from the private sector due to all this situation that is being generated, especially with the doubts of the International Monetary Fund."

Check out the "System for monitoring markets and economic situation in Central American countries", developed by CentralAmericaData.



More on this topic

Fiscal Crisis, Exchange Rate and Interest Rates

November 2020

The Costa Rican government is facing a complex scenario, since by not achieving consensus to access international loans, it will be forced to seek domestic funding sources, which would put pressure on the exchange rate and interest rates to rise.

The economic crisis that the country is going through due to the outbreak of covid-19 ended up sharpening the country's fiscal situation.

More Efforts to Curb Depreciation

October 2018

During this year, the Central Bank of Costa Rica has had to spend $1.1 billion of its reserves to participate in the exchange market and counteract the upward trend in the dollar price with respect to the Colon.

According to figures from the Central Bank of Costa Rica (BCCR), from August 17 to October 12 the exchange rate in the wholesale market Monex has been increasing, going from ¢568.35 to ¢595.46 per dollar, which is equivalent to a depreciation of 4.76%. [GRAFICA caption="Click to interact with the graph"] 

Costa Rica: Dollar Price on the Rise

September 2018

Uncertainty caused by the deteriorating fiscal situation and the economic slowdown are the reasons for the increase in the dollar exchange rate compared to the Colón, which has seen twelve days of consecutive increases.

According to Central Bank authorities, the depreciation of the local currency in relation to the US dollar is partially explained by the doubts generated by the deterioration of public finances and the absence, to date, of a legislative agreement to resolve at least part of the problem, all in the context of rising international interest rates. 

The Central Bank of Costa Rica and the Exchange Rate

February 2014

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

From a communiqué by the Central Bank of Costa Rica:

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

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