Why is the Dollar Price Falling?

In Costa Rica, the exchange rate closed on Tuesday, August 20th at 565.88 colones per dollar in the wholesale market MONEX, its lowest level since late May last year.

Wednesday, August 21, 2019

The exchange rate for this Tuesday closed at ₡565.88 in MONEX, its lowest level since late May last year. The current level implies an appreciation of the national currency against the dollar of 7.2% so far this year and -0.6% in the comparison of 12 months. Thus, the exchange rate has appreciated at an average of 30 cents per day since the year began.

Why?

Economist Adriana Rodriguez, director of the consulting firm Frecuencia Económica, explains that "...Since November of last year every month they have presented an excess of foreign exchange in the private retail market, a market where $146 million a day is traded, and that excess of dollars has intensified in the last 3 months: in fact, June recorded an excess supply of foreign exchange of $291 million, a record from our records that date from January 2015 to date..."

In his analysis, Rodriguez explains:

Changes. Both demand and supply have shown an irregular pattern during the year. Demand has been impacted by the attractive dollar-denominated debt issuances offered by the Government during the first part of the year, mainly for specific dates, while low economic growth, with its correspondingly low consumption of housing, cars and other dollar-denominated investments (inventories and savings) have kept it cautious.

For its part, the supply of dollars for the most part corresponds to a more or less stable operating flow that derives from the payment of biweekly payroll and taxes (which oblige companies and individuals to sell dollars with a certain periodicity), the coffee liquidation season but that more recently will also reflect the fact that a greater amount of economic activities are subject to monthly tax payments, that is to say, previous taxpayers are joined by companies and individuals dedicated to the services sector that will now necessarily begin to register tax payments, that is, they must sell dollars to honor their value-added tax with the Treasury.

The BCCR The Central Bank has taken advantage of the situation to catch up with the amounts it has sold to the Public Sector: it has bought $ 1,345 million in the wholesale market, $ 374 million more than it has sold to that sector this year.

What to expect Unfortunately the exchange rate is unpredictable by nature (it is a random walk for those familiar with econometrics)! 
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More on this topic

Costa Rica: Dollar Price Increases

September 2019

After the exchange rate closed on August 23 at ₡565,88 per dollar in the wholesale market MONEX, an upward trend has been reported since then, reaching ₡581,33 per dollar on September 5, which could be the result of a lower participation of the Central Bank in the exchange market.

Official figures from the Central Bank of Costa Rica (BCCR) report that between early February and mid-August of this year, there has been a fall of up to 48 colones per dollar, when reporting a drop in the average rate in the wholesale market Monex from ₡613,87 to ₡565,88.

Costa Rica: Intervention to Stabilize Exchange Rate

March 2017

In one day the Central Bank sold $30 million on the wholesale foreign exchange market in order to moderate the upward trend that had been seen in the price of the dollar against the Colon.

The transaction was made in order to prevent sharp fluctuations in the exchange rate, which since the beginning of the year has shown an upward trend in the wholesale Monex market. On Thursday, March 23, alone the Central bank sold $30.9 million, the highest figure of the year.  

Costa Rica: Dollar Price Falls 3% in a Month

July 2014

In the last 30 days the price of the dollar against the Colon went from 557 colones to 540.4 colones in the Monex wholesale market.

The decision to remove the non-fiinancial public entities from the wholesale market and less demand for foreign currency in recent weeks are the reasons for the drop of 17 colones in the price of the dollar.

Strong BCCR Intervention to Maintain Exchange Rate  

September 2013

The Central Bank of Costa Rica has purchased $57 million in the wholesale market to keep the exchange rate from falling below ¢500 per dollar.

The operation is the second largest so far in 2013, after January 9, when the institution was forced to buy $78 million, and the first since August 19.

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