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.
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.
The exchange rate began in November by recording ¢621 in the windows of some banks and ¢617 in the Monex wholesale market.
In accordance with reports since mid-August, the upward trend of the exchange rate in Costa Rica is not slowing down. According to data from the Central Bank, between August 16th and November 1st in the wholesale market Monex, the Colon has registered a depreciation in relation to the U.S.
In Costa Rica, the currency depreciation persists, with the exchange rate reaching ¢616 in the windows of some banks and ¢610 in the Monex wholesale market.
The increasing trend of the exchange rate in Costa Rica is not stopping. According to data from the Central Bank, between September 27 and October 30 in the wholesale market Monex the Colon has registered a considerable devaluation against the U.S.
The exchange rate in the wholesale market Monex reported a clear upward trend during the first four days of the week in Costa Rica, increasing from ¢589.49 to almost ¢600 per dollar.
The Costa Rican currency depreciation against the U.S. dollar has been increasing in recent weeks, mainly due to the uncertainty over the fiscal situation and the greater perception of risk by investors and consumers, even though the tax reform law has already been approved in the first debate. The new law's future depends on the Constitutional Chamber, which must give its approval before being discussed and eventually approved in the second debate. See: "Tax reform: Partial Solution." [GRAFICA caption="Click to interact with the graphic"]
The impact of the strike, the uncertainty of the fiscal situation and the increased risk perception by investors and consumers, explain much of the depreciation that the Colon is suffering against the dollar in Costa Rica.
Figures from the Central Bank of Costa Rica (BCCR) suggest that between September 27th and October 5th the exchange rate in the wholesale market Monex registered a significant upward trend, which is reflected in the increase from ¢570.75 to ¢591.25 per dollar, equivalent to a depreciation of 3.59%.
It is expected that under current economic conditions, the local currency will depreciate on average 3.6% against the US dollar in 2018.
The monthly survey on expectations of exchange rate variations up to December 2017 made by the Central Bank, foresees that during the next 12 months the Colón will depreciate by 3.6%, which would mean an increase of ₡20.52 according to the average price on the Monex Wholesale Market of ₡570.20 at the close of last year.
Raising interest rates and more and more intervention in the foreign exchange market are two of the measures that the Central Bank of Costa Rica plans to take to prevent further sharp increases in the price of the dollar against the Costa Rican colon.
Following a sharp increase in the price of the dollar against the colon a few days ago, the Central Bank announced a series of measures that it could take as part of its "commitment to price stability."At 11 am on Tuesday, May 23, the reference exchange rate of the BCCR stood at 590.57 colones per dollar.
So far in May the average price of the dollar in the wholesale Monex market has increased by 2%, going from ₡566/US$ on May 1st to ₡578/US$ on the 17th.
On May 17, in the Monex wholesale market, the average price of a dollar was quoted at ₡578 per dollar, while at bank windows the selling price reached ₡582. [GRAFICA caption="Clic para interactuar con la gráfica"]
After more than two years of virtual immobility, the dollar started a rise which has been linked to changes in external variables, accompanied by a concentration of credit in the US currency.
Accompanying this depreciation of the local currency is an increase in the benchmark rate for dollars, a new indicator that the Central Bank started publishing a few weeks ago.
An editorial on Nación.com notes "...The new benchmark rate in foreign currency calculated weekly by the Central Bank has gone up.There has also been a slight rise in quotes of the colón against the dollar in the foreign exchange market.Could there be a relationship between the two movements? "
It is reported that the reason for the rate hike is"... in the opinion of those bankers who were surveyed ... the rise is due to a shortage , or perhaps less abundance, of dollars circulating in our environment. Closely linked to the lower liquidity is the high concentration of credit granted in that currency. "
It has been noted that the Costa Rican Colon could depreciate 20% more against the dollar in the U.S. and with that correction the exchange rate will reach 650 colones per dollar during 2014.
The accelerated depreciation of the colon against the dollar in the first months of this year could continue throughout 2014. The Costa Rican Colon has room to continue to depreciate by a further 20% against the dollar, according to analysis of the real exchange rate of the Central Bank of Costa Rica.
When the monetary cauldron reaches boiling point, it is time to recognize that the best solution is to take the fuel away from the fire.
The solutions being employed as a remedy for the distortions caused by the flood of speculative capital in the Costa Rican economy, each have a common factor: they fix one end of the problem and exacerbate another.
The loss of competitiveness in exports and tourism generates unemployment, but intervening in the exchange rate will generate inflation.
There seems no good solution to the problem Costa Rica has with the appreciation of its currency, which has meant a loss of competitiveness of its exports, especially agricultural, by about 5% annually over the past 4 years.
Volatility in the foreign exchange market and a dollar priced under 500 colones are strongly affecting the Costa Rican tourism industry.
For example, lack of stability in the currency exchange rate is preventing tourism companies from evaluating how profitable an investment could be.
Additionally, such variations on the exchange rate are affecting the companies’ costs structure, complicating companies in their attempts of recovering from the 2009 financial crisis.
“Cherches la femme”: Who made profits when the dollar plunged in Costa Rica? Who is making them now with its sharp increase?
Nacion.com reported today, at 11:30 am: “The average price of the dollar in the wholesale market has increased over ¢10 when compared to yesterday’s close. It is now ¢535.88, ¢10.23 more than yesterday. From last Monday until today, the dollar has risen ¢27, after hitting a two-year low of ¢508.88 on Monday”.
Luis Liberman, Costa Rican Vice President-Elect, said the rally in the nation’s currency is “worrisome”.
Costa Rica’s colon has surged 11 percent against the dollar since Dec. 31.
The currency is benefiting from the so-called carry trade, in which investors borrow in nations with low interest rates to buy higher-yielding assets, Liberman said. Costa Rica’s benchmark rate is 5.75 percent, higher than near zero rates in the U.S., 1 percent in the euro-zone and 0.1 percent in Japan.