Friday 3 December 2021

Exchange rate would have a softer decline this year-end, analysts warn

This Monday, November 15, the dollar exchange fell ¢3.72 in the Monex market. In the first 11 days of November, financial entities bought US$97.4 million more than they sold to the public

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QCOSTARICA – In previous years, by this time the dollar exchange was already beginning to fall due to the arrival of foreign currency for year-end payments, such as taxes and Aguinaldos (Christmas bonuses). The situation could be repeated in 2021 although with some changes.

The exchange rate at the Juan Santamaría Airport in San Jose by Global Exchange went from ¢645.47 to ¢643.10 for the sell, between Monday morning November 15 and Tuesday morning the 16th

In 2018 and 2019, the price of the currency began to fall at the beginning of November and in 2020, starting on November 10 despite the pandemic since that was the first year in which the annual payment of income tax moved from December 2020 to March 2021.

However, in 2021 the currency exchange had remained on the rise until, precisely, this Monday, November 15, when it registered a drop of ¢3.72, the most important since last April 29, and ended the session in ¢639.71.

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Data from the Banco Central (Central Bank), the purchase reference exchange rate (an average of the currencies traded at the banks with the public in one part of the day and used as a reference for the next day) went from ¢638.21 to ¢636.36 and the sell price, from ¢645.47 to ¢643.10, between Monday, November 15 and Tuesday, November 16.

The banks and other entities that trade currencies have shown surpluses in the first two weeks of November. This means that brokers have bought more currency from clients than they have sold to them. Between November 1 and 11, this surplus was US$97.4 million.

A reduction, but less marked

Analysts consulted expect that this year-end there will also be a reduction, but less marked compared to previous years.

“It seems to me that the seasonal increase in the supply of dollars is going to occur and the exchange rate will exhibit some downward pressure between now and mid-December,” said economist José Luis Arce, director of FCS Capital.

However, he warned that there is a risk related to the approval of the International Monetary Fund (IMF) of the first revision of the agreement with Costa Rica.

“In the opposite direction, the depreciation of the colón can undoubtedly play and have weight the fact that the IMF still does not accept the first review of the agreement with Costa Rica and that implies uncertainty around disbursements of external support financing budget that allows the Central Bank to reconstitute monetary reserves to continue selling foreign currency to the non-bank public sector without putting pressure on Monex,” said Arce.

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Freddy Quesada, general manager of INS Valores, also considered that the seasonal effect of the exchange rate would not appear or at least not so markedly, due to the low premium for investing in colones (the return obtained compared to investments in dollars), and the presidential election.

Quesada added as positive aspects the country continues to generate good levels of exports and the more controlled pandemic could generate higher foreign exchange earnings from tourism.

“An important part of the seasonal behavior was explained by the year-end tax payments that are now made in March, a situation that could soften the seasonal behavior, given the transfer of these excess supply of foreign currency from the end of the fourth quarter to the end of the of the first quarter of each year,” commented Melvin Garita, general manager of BN Valores.

“However, it is necessary to bear in mind that a good part of these foreign exchange excesses are still maintained, given the other payments that are made at the end of the year, so a change in seasonal behavior should not be expected, but rather a smoothing of this,” Garita added.

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For the latest official exchange set daily (from Monday to Saturday) by the Central Bank, click here.

For the exchange rates at the banks as reported to the Central Bank, click here.

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