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:
In its review of the macroeconomic program for 2014-2015, the Central Bank projects, as the most likely scenario, an annual inflation of around 6% at the end of 2014, and slightly less than 5% by the end of 2015.
The document issued by the Board of the Central Bank of Costa Rica places emphasis on keeping the inflation target at "4% with a tolerance of ± 1 percentage point for the remainder of the period from 2014 to 2015."
The movement could respond to the lower volatility of the exchange rate seen from the beggining of administration of Luis Guillermo Solis on May 1st this year.
The margin between buying and selling dollars at the counters of financial institutions has declined from 13 to 10 colones colones in the last eight days, after several weeks of constant central bank interventions in the wholesale forex market, movements which the market interpreted as efforts to stabilize the price of the dollar against the colon and prevent it rising beyond what is deemed appropriate by the authorities at the Central Bank.
A proliferation of articles, reviews and editorials on the exchange rate is the best example of the prevailing concern in a market waiting for a clear definition of the exchange rate policy by the Central Bank.
Editorial
In recent weeks, and while the President of the Central Bank of Costa Rica (BCCR) is denying it , warnings have been given over interventions in the foreign exchange market by the monetary authority.
Some companies can become richer than others overnight, depending on decisions made by a few public officials.
Editorial
An article in Elfinancierocr.com reports on the positive effects of the devaluation of the national currency of Costa Rica, the-Colón, agains the dollar, for exporters in the country.
The causes of the devaluation were mainly external, but were catalyzed by decisions made by public officials, the Central Bank, whose missive it is to defend the value of the national currency, because this supposedly contributes to the economy.
The decision by the Central Bank seeks to ease inflationary pressure on exchange rate rises and may increase interest rates in the short term.
Bankers and analysts agree that interest rates in the financial system will tend to rise in the coming months, as inflation is being pushed upward by the recent movements in the exchange rate.
The Central Bank of Costa Rica (BCCR) , in an attempt to keep inflation within the target range, has raised the policy rate from 3.75 % to 4.75%. This indicator is a benchmark for financial institutions who pay this rate on on overnight funding in the liquidity market.
With Central Bank interventions having already exceeded $100 million, on February 27th the dollar was quoted at 560 colones at bank counters.
There have now been four consecutive interventions by the Central Bank of Costa Rica (BCCR) to support the price of a dollar in the wholesale market in a week.
The exchange rate at the bank counters was quoted between 500 and 560 colones on Thursday, 27.
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.
The Central Bank has lowered its inflation forecast to 4% for 2014 and projects increases in interest rates in colones and dollars.
From a Communiqué from the Central Bank of Costa Rica:
The Board of the Central Bank of Costa Rica, in Article 4 of the 5633-2014 session of January 29, 2014 approved the 2014-15 macroeconomic program.
This program is intended to inform the public on the performance of key macroeconomic variables during 2013, as well as the goals, policy measures, assumptions and projections for the next two years, consistent with the priorities and subsidiaries assigned in Article 2 of the Organic Law (Law 7558).
After the strong rebound experienced on Wednesday 29, the dollar has stabilized in the exchange market.
From a statement by the Central Bank of Costa Rica:
Today, January 30, 2014, the exchange rate of the U.S. dollar in the Foreign Currency Market (Monex) opened with quotes of ¢519 and has shown a downward trend. At 2:00 pm today the average price was ¢514.64 per dollar with a negotiated amount of $4.5 million, which corresponds to a relatively normal amount for the advance of the session.
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 discusses the possible directions that the monetary policy of the Central Bank of Costa Rica could take, while the influx of speculative capital accelerates.
From Pulso Bursátil, the Blog by Aldesa:
The Central Bank's dilemma ... floating exchange?
In recent weeks there has been speculation about possible changes in the Central Bank of Costa Rica’s (BCCR) monetary policy, in the light of the behaviour of the foreign exchange market at the end of 2012 and so far in 2013. The comments are gaining more weight as the limits established in the BCCR’s reserve accumulation plan get closer to being reached. The plan states that the entity can purchase, for the purpose of defending the lower limit of the bands, a maximum of U.S. $1.5 billion in 2012 and 2013. As of today the figure is U.S. $1.49 billion.