Friday, 30 October 2020

Costa Rica’s Monetary Policy Rate Falls Again

Central Bank said that the tension between the United States and China has "affected the slowdown of trade flows and growth projections"

A “high uncertainty” in the global economy, associated to the tensions between the U.S. and China, together with the slow growth of production in Costa Rica caused the Central Bank of Costa Rica (BCCR) to reduce, for the fifth consecutive time this year, its Tasa de Política Monetaria (TPM) – Monetary Policy Rate – this time to 3.75%.

Click here for the latest rates by Central Bank

In a statement (in Spanish) on Septemerb 19, the Central Bank said that the tension between the two world economic powers has “affected the slowdown of trade flows and growth projections of our main trading partners”.

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According to the Central Bank statement, in this context of greater global uncertainty, other central banks have chosen to reduce their rates (Brazil, Mexico, Chile, Peru, New Zealand, India, Thailand, and Australia), which has allowed greater space for a countercyclical monetary policy in Costa Rica.

On September 12, the European Central Bank (ECB) also announced a cut in interest as well as the purchase of public and private debt to stimulate the economy of the eurozone and move it away from a possible recession.

Both local economists and the Costa Rican productive sector warned that the risks foreseen by the U.S. Federal Reserve System and the ECB would have a negative impact on Costa Rica, as both regions are among the country’s main trading partners.

Between January and July of this year, exports to the United States and Europe was 63% of the US$7 billion of goods produced in Costa Rica.

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Also, 59% of the 1.7 million tourists who vacationed in the country, during the first half of the year, are from both regions.

In relation to the Costa Rican economy, another factor that weighed on the Central Bank Board of Directors when deciding to reduce this interest rate was the behavior of inflation, since it has remained within the Central Bank’s forecast in the macroeconomic programming of this year.

In addition to the decrease in the MPR, it was agreed to reduce the gross interest rate of the deposits on one day term (DON) by 21 basis points, to place it at 2.26% per year, also as of September 19, 2019.

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