QCOSTARICA – In December, Costa Ricans expected the dollar exchange rate to increase only 0.44% in a whole year. But in August, the expectations were very different. The estimate was that the price of the U.S. dollar against the Costa Rica dolon will increase by 5.38% during the next 12 months.
In just 8 months, the expectations of economic agents grew 12 times, which reflects a growth in uncertainty about the value of the local currency compared to the foreign one.
The hope of a drop in the price grew weaker and weaker.
Month by month, Costa Rica’s Banco Central (BCCR) – Central Bank – publishes what the market’s expectations are regarding the exchange rate. It is an approach to a forecast of what is expected of this indicator at one, two, three, and five year terms.
The shortest term indicator, which is 12 months, shows that uncertainty has been growing steadily, and has remained above 4% since May.
This 5.38% increase would mean the colon going from ¢629.01, the reference sale price today, Thursday, September 9, 2021, to ¢661.2 in the following year, which would mean around ¢34 more for August of 2022.
Emanuel Agüero, manager at Inversiones de Mercado de Valores, pointed out that the exchange rate expectations survey has been characterized above all by showing market sentiment at the exact moment the survey is carried out.
In this sense, at this moment the survey is reflecting the uncertainty of the market regarding the evolution of the colon/dollar for the next few months as a result of the local context that is conditioned to political elements (public employment reform and electoral campaign, for example).
“It should be taken into account that the evolution of the exchange rate will depend on the approval of credits with multilateral organizations, the management of excess international reserves of the BCCR and the perception of sovereign risk due to the political and electoral environment in Costa Rica,” clarified the analyst.
The estimates made by the Central Bank are consistent with other measurements recently made in the country.
For example, the business confidence survey of the Instituto de Investigaciones en Ciencias Económicas (IICE) -Institute of Economic Sciences Research – of the University of Costa Rica for this third quarter of the year indicates that there are more businessmen and merchants who expect the exchange rate to increase, relative to the second trimester.
In the second quarter of the year, only 38.9% of those interviewed expected increases in the value of the dollar. For this period the general percentage increased to 59.1%.
On the contrary, entrepreneurs who expected stability fell from 46.5% to 29.3%.
Traders, entrepreneurs in manufacturing and the service sector are the most likely to think that the exchange rate will increase, compared to those in the construction and agricultural sectors.
“Of the 59.1% of the interviewed businessmen who expect an increase in this indicator, 59.3% consider that this behavior will have a negative effect on the competitive position of their companies; while 23.1% consider that it will not affect them (being greater in non-exporters) and 17.6% indicate that the effect is positive (being greater in exporters),” indicated the IICE study.
According to the Central Bank, the pressures that currently exist on the exchange rate have to do with a seasonal aspect in which the market finds itself with less foreign currency than in other periods.
In addition to this, the low influx of currency is added due to the lower arrival of tourists to the country and the greater need for public institutions to pay bills in dollars, especially the Costa Rican Petroleum Refinery (RECOPE) for the importation of fuels.
Both the Central Bank and the Ministry of Finance (Treasury) emphasize that the operations of buying and selling dollars at banks were in surplus during the first half of the year (people have sold more dollars to banks than they have bought).
As highlighted by the Treasury in its fiscal framework report for the semester, this allowed the Central to acquire US$1.405 billion in Monex, of the US$1.942 billion demanded by the non-banking public sector (SPNB)
“The higher requirement of the SPNB was due, fundamentally, to a strong increase in purchases from the central government, this due to the lower inflow of external resources in relation to what was programmed (due to the absence of legislative approvals) and a low uptake in the auctions of securities. in dollars compared to the maturities of these securities.
“The difference between what the Central Bank sold to the SPNB and what it was able to acquire in Monex was addressed through a reduction in the Central Bank’s international reserves.
“As of July 23, the interannual variation of the exchange rate was 6.2% and the accumulated annual variation was 0.8%. The evolution of the exchange rate this year has required 7 interventions of the Central Bank to limit abrupt movements (stabilization sales amounted to US$6.6 million),” said the Treasury in that document.
In theory, these pressures should subside towards the end of the year, with the inflow of foreign exchange from tourism and the inflow of resources from foreign loans, if they are finally approved by the Legislative Assembly.