Monday 2 August 2021

Central Bank forecasts inflation below 2% in the next two years

Costa Rica's central bank that by 2021 and 2022 the indicator will remain below its target range (2% to 4%), a situation that gives room for an expansionary monetary stance

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QCOSTARICA – Costa Rica’s Central Bank forecasts continue to show that in 2021 and 2022 inflation would remain below the lower limit of the target range of between 2% and 4%.

Banco Central de Costa Rica (BCCR) – Central Bank

This situation, says the Central Bank, gives room to continue with an expansive and countercyclical monetary policy (low interest rates) and therefore decided to maintain, on December 18, the monetary policy rate at 0.75% per year.

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The monetary policy rate is a reference rate; It is what the Central Bank considers to be consistent with the cost of money at any given time, and generally has an impact on the rest of the rates in the financial system.

With this and other measures that the Central Bank has taken, it is sought to create the conditions for companies and individuals to apply for credit and this allows the economy to be encouraged.

The Central Bank explained, through a statement, that the gradual lifting, in Costa Rica and its trading partners, of sanitary restriction measures due to the pandemic, has allowed a moderate recovery in economic activity and in the labor market. However, the level of production remains below its potential.

Thus, the monthly economic activity index (IMAE) for October 2020, in its cyclical trend series (excluding seasonal and irregular factors), decreased at an interannual rate (for each month compared to the same month of the previous year) of 6.6 %, while the unemployment rate stood at 21.9% in the moving quarter that ended in October.

For its part, the demand for loans in the private sector continues to stagnate.

“In a context of disinflationary pressures in the Costa Rican economy since 2019, accentuated since last April by the health and economic crisis, general and underlying inflation registered, last November, interannual values ​​of 0.2% and 0.8%, in that order,” the Central Bank said in a statement.

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