The Central Bank has confirmed the widespread perception of economic slowdown, with growth forecast for this year falling from 3.4% to 2.8%.
The president of the organization confirmed that an excess of dollars in the foreign exchange market explains the behavior of the exchange rate, which has remained relatively low and stable in recent months.
From a statement issued by the Central Bank of Costa Rica:
The business sector is drawing attention to the fact that the Central Bank has not been clear in its explanations of the causes of the recent rise in the dollar.
Jaime Molina, president of the Costa Rican Union of Chambers and Associations of Private Enterprise at the Central Bank has complained about a lack of clarity in the explanations given for the causes of the recent rise in the exchange rate.
The discretionality of interventions made by the central bank in the foreign exchange market could open the gate for unjust enrichment of those who have inside information.
EDITORIAL
In the best of democratic worlds, the intervention of public employees in the economy generates income transfers between the sectors within the economy, according to state policies that are largely accepted by the population.
Credit growth in dollars is causing concern about possible risks of devaluation and a rise in interest rates.
Nacion.com reports that: "Guillermo Quesada, President of the Chamber for Banking and Financial Institutions said that banks have been proactive and have already taken steps to address the risks."
"The president of the Central Bank is concerned about the further widening of the gap between total external liabilities of banks (debt that banks have bought in from outside) and assets (its holdings in the currency)."
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.
"During the past three weeks the exchange rate has shown its greatest volatility of the year ranging between ¢505 and ¢500" reports elfinancierocr.com.
Aldesa analyzed the Macroeconomic Program 2011-12, by the Central Bank of Costa Rica, with projections for 2011.
In our view, one of the most important elements of the program and to which attention should be paid, has to do with projections for public finances.
Given the relative similarity of economic conditions between 2010 and 2011, the most important is the role played by the Central Government in managing the growing fiscal deficit.
The Central Bank of Costa Rica (BCCR) reported the acquisition of $ 7.5 million to defend the lower limit of the band system governing the exchange rate.
The BCCR´s intervention on the foreign exchange market increased liquidity in Colones, which in principle, and given current conditions of the monetary system, it did not have the usual inflationary effect.
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.
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.
Costa Rican analysts shared their insights as to what caused the Costa Rican colon to gain so much value versus the dollar.
Two explanations seem to be the most agreed upon:
1. Speculative capital enters the country to take advantage of high interest rates in Colones, as opposed to low yields in international markets.
2. Domestic investors are transferring their investments from dollars to colones.
The recent increase in the value of the Costa Rican colon versus the dollar is worrisome, not only because there are no clear reasons to explain it, but also because it would be hard to contain it without causing greater problems.
In the past weeks, and without apparent reason, the price of the U.S. dollar in Costa Rica dropped considerably.
Last week we surveyed some financial operators as to why these movements where occurring, the general answer being: “we don’t know”.
Aldesa reported on recent upwards and downwards movements in the price of the Costa Rican colon versus the U.S. dollar.
A slight increase was reported in the exchange rate by the end of last week. $11.2 million were traded at an average price of 524.24 colones, 1.36 more than on Thursday, but 10.77 more than the closing price of the previous week.