Slow recovery tied to a lagging U.S. economy, 3% growth in 2010 due to increased domestic consumption and rising remittances and international trade.
The countries in Central America are recovering gradually, led by a rebound indomestic demand (following its sharpcontraction in 2009), which has partly spilled over into imports. Pickups in exports and morerecently remittances have been further positive developments.
Interest rate on 60 to 89 days Electronic Term Deposits (DEP), increased from 4.25% to 4.40%.
Terms on 90 to 179 days increased from 4.55% to 5.05% and for 180 to 269 days from 5.57% to 6.32%.
"This is the third interest rate change made by Central Bank after the sharp cut of 1.50 points made on August 19 August." La Nacion reports on its website, "…the rate for 180 days to 269 days was cut from 6.75% to 5.50% on August 19th and with Saturday´s adjustment it reached 6.32%."
The new rate reflects an increase in public banks deposits, which rose from 6.53% to 8.13%.
One factor that could explain the higher rates paid by public banks for deposits in Colones are the unusual Dollar purchases made by the public sector to Monex last week. These institutions bought more than $ 100 million in just 5 days, which implies a demand for Colones in order to pay for those Dollars, especially at the end of the month.
Starting Thursday, September 30, the Passive Basic Rate (TBP) will stand at 7.50%.
El Financiero, on its website explains "the TBP is a weighted average interest rate of gross uptake in Colones, negotiated by financial brokers operting in the country as well as by Central Bank and the Ministry of Finance.”
This places the rate at its lowest in recent years.
Last time Basic Passive Rate reached this level was in August, 14th, 2008.
Last week the Central Bank, Treasury Ministry, state-owned and private banks reduced their interest rates, reported the Central Bank. "Nevertheless, state owned banks had the strongest influence in this reduction, as they lowered their interest rates the most".
Markets closed with the dollar at ¢518.34, ¢7.88 higher than the day before, after the Costa Rican Central Bank's (BCCR) decision to increase foreign exchange reserves.
Since the BCCR announced the news, the dollar's price increased steadily, reaching a high of ¢523,01 before finally closing at ¢518.34.
Rodrigo Bolaños, president of BCCR, said that, "in the coming days it will be interesting to see what direction the exchange rate takes because just the announcement alone has caused it move up by several colones," reports Nacion.com.
The monetary authority has launched a scheme to acquire international reserves, immediately causing the exchange rate to rise.
In his blog for Nacion.com the analyst Jorge Guardia highlights that this intervention represents a trimming and sprucing within the limits and a fundamental change in Central Bank (BCCR) policy that lacked due transparency.
Central America may be directly impacted by the slowdown in the recovery of the world economy.
For the time being, the region's measures of external and internal demand do not seem affected by the threat of lower growth rates for the economies of partner developed countries. Some central banks had raised their expectations but, in view of the risks, they are likely to revise their growth predictions back to original levels between 2.0% and 2.7%.
Good news for importers and store owners, bad news for exporters. Governments cannot afford to ignore this problem.
The causes of the appreciation in the value of Latin American currencies relative to the United States dollar are varied. The main reason is the current weakness of the US economy and the low expectations of a quick recovery. In addition, Central and South American economies are doing well, boosted by high commodity prices and the way their financial systems withstood the last crisis.
The Costa Rican Central Bank (BCCR) has cut its monetary policy managed rate (TPM in Spanish) by 0.5%.
BCCR believes that medium term inflationary pressures have subdued, taking into account underlying variation in prices. In addition, greater exchange rate flexibility has created favorable conditions enabling it to manage monetary policy more effectively," reports Nacion.com.
The Costa Rican Central Bank, in its half yearly review of the Macroeconomic Program, held inflationary goals for December 2010 and 2011 constant at 5% and 4% respectively.
The document's prologue indicates that:
"Monetary policy remains focussed on consolidating the deflationary trend observed in the last 19 months. In the medium term the aim is that inflation will converge with levels in the country's main commercial partners.
The Costa Rican Legislative Assembly is to review a proposed law that “will protect the purchasing power of Costa Rican salaries and pensions”.
An opposition congresswoman from the ML political party submitted the proposal, which would “dollarize” the Costa Rican economy and take away some responsibilities from the Costa Rican central bank, such as that of regulating monetary policy.
In its Inflation Report for May 2010, the Central Bank of Costa Rica announced the gradual shift from the existing current currency bands system to a flotation regime.
The report remarks that “one of the preconditions to move towards an inflationary targets system is the existence of a flexible way to determine the exchange rate, allowing the bank to focus its monetary policy on reaching said inflation targets, without worrying for exchange rate pressures”.
The Basic Passive Rate dropped one quarter of a percentage point, it is the first downward movement in over a month.
Since early 2010, the Basic Passive Rate, an average of rates paid by various securities in the financial system, has hovered between 7.75% and 8.5%.
“According to a Central Bank report, the downward movement was mainly due to a reduction in the rates paid by state owned banks”, reported Elfinancierocr.com.
ANFE, the National Association For Economic Development, formally presented a project called “Monetary Responsibility and Dollarization Bill”.
From ANFE’s press release:
“This project is a reaction to the fact that during the past six decades, the Central Bank has artificially created economic winners and losers every time it intervenes in the market.