Arguing that in the international context a high uncertainty associated to the commercial tensions between the U.S. and China prevails, the Central Bank of Costa Rica decided to lower for the fifth time so far this year the Monetary Policy Rate, this time to 3.75%.
For the monetary authority, the tension between the two world economic powers has led to a slowdown in trade flows and growth projections in our main trading partners.
Between February and August of this year, the Consumer Confidence Index decreased six points, as a result of people not perceiving effective and short-term measures that tend to revive the national economy.
The current level of confidence reflects consumers pessimistic about the economic situation, a condition that has been present for a year, according to the report prepared by the School of Statistics of the University of Costa Rica.
Between January and July of this year in Costa Rica the Central Bank lowered the Monetary Policy Rate four times in a row, but its last decision was to maintain it at 4%.
Among the arguments of the monetary authority it is worth highlighting that the international interest rates are adjusted downward. In particular, the US Federal Reserve System reduced the reference interest rate range by 25 base points.
Panama and Honduras were the only two Central American countries to report increases in foreign direct investment in 2018 over the previous year, with year-on-year changes of 36% and 3%, respectively.
The growth of investments directed to Panama, which concentrated 51% of the sub-regional total, explained the increase that was reached in 2018 in Central America (9.4%), since except Panama and Honduras, the Central American countries received less Foreign Direct Investment (FDI) than in 2017, explains the report "Foreign Direct Investment in Latin America and the Caribbean 2019", produced by the Economic Commission for Latin America and the Caribbean (ECLAC).
Arguing that there are deflationary pressures and that the unemployment rate remains high, the Central Bank reduced the Monetary Policy Rate from 4.5% to 4%.
This would be the fourth reduction in the Monetary Policy Rate made by the Central Bank of Costa Rica (BCCR) so far this year, since at the beginning of 2019 was at 5.25% and is currently reduced to 4%.
The outlook for some economies in the region for 2019 is not the best: in Nicaragua GDP is expected to fall between 5% and 7%, while in Costa Rica the growth estimate at the end of the year was reduced from 3.2% to 2.2%.
The estimates of the Nicaraguan Foundation for Economic and Social Development (Funides), presented in its "Informe de Coyuntura - Julio 2019", indicate that by 2019 an economic contraction of between 5.4% and 6.8% will be reported in the country.
In the first quarter of the year, the country's Gross Domestic Product increased 1.8% year-on-year, lower than the 3.3% reported in the same period in 2018, which is partly explained by the fall in the prices of some agricultural export products.
According to the report of the Central Bank of Costa Rica, the slowdown combined external and internal factors, among which stand out:
In the context of the protests and blockades that have been affecting Costa Rica for several days, the businessmen denounce that there are millions of losses, mainly in tourism, exports, and agricultural, industrial and commercial activities.
Arguing that deflationary forces persist and that a low rate of economic activity is reported, the Central Bank decided to reduce the Monetary Policy Rate to 4.50%.
This is the third reduction made by the Central Bank of Costa Rica (BCCR) so far this year, since at the end of March it decided to reduce the monetary policy rate from 5.25% to 5% and in May from 5% to 4.75%.
In Costa Rica, the Monthly Economic Activity Index reported a 1.6% year on year increase in April, a variation that is lower than the 1.8% growth reported in March.
Excluding financial services and electricity and water, the rest of the economic activities grew less, or even had negative variations with respect to the previous year, as in the case of the agricultural industry, construction and trade, reported the Central Bank of Costa Rica (BCCR).
The effects of the reduction in the Monetary Policy Rate and the lowering to 12% of the minimum legal reserve for banks will take months to be perceived, and without other parallel actions that impact the business sector more quickly and effectively, the economic reactivation of Costa Rica will not be possible in the short term.
According to the latest report of the Central Bank of Costa Rica (BCCR), when comparing the level of economic activity recorded in March this year with the same month of 2018, it is observed that most economic activities slow down their growth, which was reflected in the slowdown of the general indicator. See full report.
Consistent with the pessimism with which the population of Costa Rica perceives the general state of the economy since August last year, between February and May this year the Consumer Confidence Index fell two points.
In May 2019, the Consumer Confidence Index (CCI) fell almost two points from February. Currently, the ICC is 32.9 points (on a scale of zero to 100) and three months ago was 34.8 points, according to the report released by the School of Statistics of the University of Costa Rica.
Arguing that the rise in international commodity prices and the redefinition of the basic tax basket could put upward pressure on inflation, the Central Bank reduced the Monetary Policy Rate to 4.75%.
This is the second reduction made by the Central Bank of Costa Rica (BCCR) so far this year, since at the end of March it decided to reduce the monetary policy rate from 5.25% to 5%.
In Costa Rica, the Monthly Economic Activity Index reported a 1.8% year-on-year increase in March, and business, education, health and financial services accounted for 60% of the increase.
Compared with March 2018, most economic activities moderated their growth, which was reflected in the deceleration of the overall indicator. The agricultural industry and trade were the only ones to show a decline, explains a report by the Central Bank of Costa Rica (BCCR).
The low dynamism of the commercial activity and the high unemployment, are the main reasons behind the fall in the consumption in Costa Rica, and great changes are not expected in the short term.
In February 2019, the country's production, measured according to the Monthly Economic Activity Index, registered a 1.7% year on year variation, informed the Central Bank of Costa Rica.
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