Thursday, 22 October 2020

Costa Rica considers introducing capital controls

Costa Rica is considering introducing capital controls to combat so-called hot-money inflows that are putting upward pressure on its currency, Central Bank President Rodrigo Bolaños said on Friday.

rodrigo_bolanos_400From Tuesday to Thursday, the Central Bank bought US$125 million of US dollars to maintain its exchange rate within a set band.

Bolaños said that Costa Rica was studying the experiences of other countries in Latin American such as Brazil, which has introduced measures in recent years to stop overseas investment from pushing up its currency.

“We’re looking at and considering (capital control) options, which of them have been good experiences and what are their weaknesses,” said Bolaños.

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Low interest rates in advanced economies have encouraged investors to seek higher returns in emerging markets such as Costa Rica, where the benchmark interest rate is at 9.05 percent.

Bolaños declined to comment on the possibility of relaxing the exchange rate band and allowing Costa Rica’s currency to go below its current 500-colon floor.

But in a meeting on Thursday with Bolaños and the country’s vice president, Luis Liberman, the president of the Exporters’ Chamber, Monica Segnini, said that the possibility came up.

“It was discussed and we made our position very clear that letting the band go without controlling interest rates would kill industry,” Segnini said.

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