Tuesday 27 September 2022

Big savings in fuel purchases helps maintain abundance of dollars in the market

Lower consumer spending, reduced investment and Central Bank's increasing monetary reserves are other factors

BusinessEconomyBig savings in fuel purchases helps maintain abundance of dollars in the...

Lower consumer spending, reduced investment and Central Bank's increasing monetary reserves are other factors

The strong savings that Costa Rica is having in the purchase of fuels due to the pandemic contributes to the internal foreign exchange market remaining in surplus, despite the reduction in income from tourism.

According to data provided by Recope, the State entity that purchases finished fuel products for distribution, the country went from paying US$161.7 million for fuels, in April 2019, to US$35.7 million, in April 2020, a fall of 78%.

- payin the bills -

This is due both to the drop in the price of fuels on international markets, that went from US$78.89 per barrel in April 2019 to US$32.22 a year later; as for the reduction quantity purchased, from 2,050,343 barrels to 1,109,732 barrels.

This generates a very important drop in the demand for dollars in the foreign exchange market since Recope is a great demand for them, and for this reason there are signs of an abundance of dollars in the market.

Another sign is that the Central Bank’s monetary reserves have increased, from US$8.574 billion, last Friday, May 15, to US$8.842 billion on Wednesday, May 20.

This is due, in part, to the fact that the Central Bank has taken advantage of inventories to continue fueling its program of accumulating monetary reserves.

- paying the bills -

The Central Bank announced last November 29 that it would execute a program to purchase international reserves for up to US$1 billion, during the period from November 27, 2019, to December 31, 2020. As of May 21, the Bank Central has purchased US$620.9 million.

This situation has led to the price of the dollar exchange remaining stable. This year, one US dollar has fluctuated between ¢562.17 and ¢584.93 (the average price in the Monex market). On Friday (May 22) it closed at ¢571.47.

Other factors influencing the surplus

Economist Norberto Zúñiga explained that both the supply and demand for dollars have decreased; but demand has done so in a greater proportion.

Zúñiga cited other factors that influence the surplus shown by the exchange market.

“Generally, when income is reduced, as is the case today, people tend to decrease their consumption of goods and services considered luxury in a greater proportion. Among these products are trips abroad, the purchase of automobiles, refrigerators and other durable items; which require the use of dollars for purchases,”h e said.

Furthermore, when economic activity contracts and the prospects are not very rosy, as now, investment is significantly reduced and with it the import of machinery and materials, which are generally bought in dollars, abroad.

- paying the bills --

Zúñiga added that during this year the financial intermediaries have also used part of their currencies and have reduced their demand for dollars. As a consequence, the net external position (assets minus foreign currency liabilities) decreased by US$158 million.

Another factor he cited is that credit to the private sector has been very stagnant; In the case of financing in dollars, it has decreased, which is why financial institutions demand less foreign exchange in the market, also for this reason.


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