Q COSTA RICA – Financial analysts and economists predict that the dollar exchange rate will stay low for the next three months, after the Banco Central (Central Bank) announced a 50 percentage points reduction in monetary policy rates, bringing it down to 7.5%.
This has caused the dollar to drop by ¢56 colones from January to date, according to the Central Bank, which means that investing in colones is still profitable and leads to more dollars in circulation.
The excess of dollars in the first six months saw an appreciation of 22% in the colon, which is great news for debtors in dollars but not so good for businesses that sell in dollars and have to cover administrative and operating costs in colones, resulting in lower profits due to the exchange rate difference.
Those who earn their salary in dollars are advised to remain patient and not to be disheartened as it is a temporary situation and not permanent.
Financial analyst Daniel Suchar suggested that businesses review their volatility daily and adjust their cash flows and reference prices. These changes in the dollar exchange rate affect both small and medium-sized companies and multinationals.
“It is unlikely that the dollar will rise in the next three months and that is why entrepreneurs must review volatility every day and adjust their cash flows and reference prices, which is the value that two related companies set for each other at when it comes to exchanging goods and services,” said Suchar.
These changes in the dollar affect both small and medium-sized businesses and multinationals.
Carlos Gómez from Baker Tilly Costa Rica remarked that presenting financial statements in different currencies without adequate analysis could lead to variations and make them less comparable, thereby affecting the business’s profitability and financial situation.
“The presentation of financial statements in different currencies, without an adequate analysis, can produce variations and make them less comparable, distorting the image of the company’s profitability and financial situation,” advised Gómez.
Exchange coverage is also recommended at this time, as it gives companies more control over their planning.
Tourism, agriculture, industry, and exporters are the ones being hit the hardest by the drop in the exchange rate.
The value of the colon and the high-interest rates are really doing a number on both the manufacturing sector and the majority of the country’s production.
And thousands of families are feeling the pain as the interest rates for colones-denominated loans stay high, endangering employment and overall stability in the nation.
“The excessive appreciation of the colon and the high-interest rates are hurting the manufacturing sector, but also the vast majority of the national productive sector. Likewise, thousands of families are being affected because the payment of interest for loans in colones will remain high and this is putting employment at risk and, ultimately, the stability and social peace of the country,” said Sergio Capón, president of the Camaras de Industrias de Costa Rica (CICR) Board.
Those who are reaping the benefits of the low dollar exchange rate are the over 700,000 households with dollar-denominated debts and colones-denominated earnings, who are no doubt remembering the bad times when the exchange rate was ¢700.
Elizabeth Morales, assistant manager of Coopecaja, advises everyone to start saving up in dollars due to the exchange rate, as it’ll give you a nice payout if and when it goes up.
“It’s a good time to make a reserve in dollars because it increases you will earn that difference, it’s also good that you have money for an emergency,” said Morales.
The behavior of the dollar exchange so far this year:
- January 1: ¢602 (colones to one US dollar)
- February 1: ¢558
- March 1: ¢563
- April 1: ¢546
- May 1: ¢550
- June 1: ¢546
- June 20: ¢546