Tuesday, 1 December 2020

Central Bank Eliminates Exchange Rate Bands and Begins A Managed Float


QCOSTARICA – The president of the Banco Central de Costa Rica (BCCR) – Central Bank, Olivier Castro announced this morning the elimination of “bandas cambiarias” – exchange rate band system  – and the move to a managed float system.

Castro explained that under the new system the dollar price may vary according to supply and demand and the Central Bank will only intervene if there are “violent fluctuations” in the foreign exchange market.

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The Central Bank president said the migration is being done at a time when the “macroeconomic conditions are right. This measure aims to strengthen the economy to face settings are not sorted in international markets,” said Castro

Castro explained that the step towards a more flexible system is a process that has been materializing for the last nine years. This was the first step of the country towards free floating exchange rate, which at that time and since 1984 used the mini-devaluations (a type of fixed exchange ratio calculated daily).

The change takes effect on Monday, February 2, when the upper and lower limits exchange rate bands, in place since 2006, will be phased out.

At the close of trading on Friday, the  exchange rate closed at ¢530.85 for the sale and ¢543.08 for the buy. The limits of exchange rate bands were: ¢500 for the lower and ¢866.05 for the top.

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The new measure should is not expected to cause strong movements in the exchange rate, as the country has had stable rate of exchange since the second quarter of 2014.

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