During 2019, the price of the dollar in Costa Rica registered multiple fluctuations; however, for this 2020, such abrupt variations are not anticipated, since the Central Bank starts the year with reserves close to $9 billion.
Data from the Central Bank of Costa Rica (BCCR) show that between February 4 and November 28, 2019, the average dollar price in the Costa Rican market fluctuated considerably, ranging from ₡614.31 to ₡562.63.
The Latin American Reserve Fund has approved a $1 billion loan to improve the capacity of the Central Bank to intervene in the exchange market.
From a statement issued by the Central Bank of Costa Rica:
On October 2, 2017, the Board of Directors of the Latin American Reserve Fund (FLAR) approved a request by the Central Bank of Costa Rica (BCCR) to obtain a Balance of Payments Support Credit in the amount of US $1 billion, to strengthen the country's international reserves position.
In a new effort to avoid abrupt increases in the exchange rate, the Central Bank has announced that it will now be able to sell more dollars directly to public institutions.
So far the Central Bank has had to respect the limit of 8% of the average balance of the Net International Reserves in direct sales of dollars to public sector entities.The Central Bank decided to eliminate this limit in order to be able to sell them the dollars that they require and thereby avoidturning to the wholesale Monex market to buy them from financial entities
In September an intervention was made in the exchange market through the sale of $81 million in order to avoid upward pressure on the exchange rate.
The $81 million that the Central Bank sold on the wholesale market to try to minimize upward pressure on the exchange rate is almost half of the amount it has injected so far this year.
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.
Inflation deceleration and Risks to economic recovery.
The quarterly report from the Executive Secretary of the Central American Monetary Council (SECMCA) focuses on the region's inflation and recovery prospects.
Inflation, measured by year-on-year change in consumer prices, slowed in the second quarter of 2010 to 4.9%, compared to 2.9% in June 2009. This level is within the target limits set by the region's central banks.
Monthly Index of Economic Activity (IMAE), exports, remittances, international reserves, exchange rates, inflation, tax collection, banking system, foreign investment, tourism and outlooks.
Oscar E. Mendizábal, editor of the Blog “Desde Guate” (From Guatemala), gathers and analyses the main factors influencing the Central American economy (except Panama) during the first six months of this year.
The currency is moving up again, synchronized to the end of the tax paying period, and after one month of relative stability.
On Monday 14, the dollar began the day valued at ¢581 in the wholesale market. As the trading session progressed, upward pressure began to affect its price. At the end of the day, $1.8 million were traded at the upper enforced limit, ¢596.05.
Moderated reduction in IMAE, drop in international reserves, pressure on the exchange rate and a worsening fiscal situation.
Costa Rican Economy Still in Recession
An improvement in economic activity has been observed in the second trimester. From April to June, the Monthly Index of Economic Activity (IMAE), recorded an annualized growth rate of 5.9%, while it had contracted at an annualized pace of -0.9% in the first trimester.
Growing fiscal deficit could increase the Treasury's participation in the securities market.
Even though economic activity dropped at a lower pace, Costa Rica's economy is still in recession.
Moderation in the contraction rate of the Monthly Economic Activity Index (IMAE) - Economic activity in Costa Rica is still contracting when compared to last year's levels, even though the pace has reduced in the last months.
In the second quarter of the year, the IMAE index grew at an annualized rate of 5.9%. In the first quarter it had dropped 0.9%.
In June the Monthly Economic Activity Index (IMAE) grew 0.34%. For the past 12 months it contracted 2.2%, less than the 2.8% drop registered in May. The highest 12 month contraction was -5.1%, recorded in February 2009.
For the second quarter of the year, the index grew at an annualized rate of 5.9%, while it dropped -0.9% in the first quarter of the year. Accordingly, in the first half of the year economic activity diminished 3.9% when compared to the same period of 2008.
The country's international monetary reserves were down $53.3 million last week, standing now at $3.931 million.
This drop is a result of the intervention by the Central Bank in MONEX, the wholesale currency market. To prevent the exchange rate from surpassing the fixed upper limit, the bank sold $32.8 million last week in this market.
On Tuesday, the 10th, in the wholesale market (MONEX), the exchange rate reached ¢566.85, surpassing by one colón the set ceiling as determined by the BCCR (¢565.85).
The exchange rate has remained pegged to the upper band in the last few weeks. This situation and the increase in the volume of transactions reflect the resurgence of the demand for dollars.