Wednesday 22 September 2021

Central Bank’s Intervention to Stabilize Exchange Rate

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Q MONEY – In the last several weeks we’ve seen the Dollar exchange rate go from 545/558 colones to one US Dollar in December to 555/568 to the beginning of this month and then in the last few days drop to today’s 552/565.

But why, without asking why hasn’t the Colon/Dollar exchange shifter similar to the Colombian Peso or Canadian loony?

The answer lies in one word: intervention.

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Costa Rica’s Central Bank (Banco Central de Costa Rica) has a policy of intervention to stabilize exchange Rate

Although the intervention is not always daily, last week, in one day, on Thursday, the Central Bank sold US$30.9 million on the wholesale foreign exchange market in order to moderate the upward trend that had been seen in the price of the dollar against the Colon.

The March 23 intervention was the highest of the year.

According to a report by ElFinanceriocr.com, the transaction was made in order to prevent sharp fluctuations in the exchange rate, which since the beginning of the year has shown an upward trend in the wholesale Monex market.

Screen capture from ElFinancierocr.com report

Elfinancierocr.com says, “…A higher figure was registered on December 27 last year, when the Central Bank sold more than US$45.5 million for the same reason. The amount corresponds to 67.5% of the total amount traded on Thursday in Monex ($45.7 million).”

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“… Regarding figures on the intervention, with the amount traded on Thursday, the Bank’s intervention exceeds US$176 million in the nearly first three months of this year, 2017. After refining the analysis on the behavior of the average exchange Monex rate (colones per dollar), this went from ¢560.26,  registered on March 22 , to  ¢560.69, on Thursday, virtually unchanged.”

 

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