Tuesday 7 February 2023

Will the dollar exchange rate be volatile at the end of the year?

At the moment, there are no major arguments for the devaluation; rather, there would be stability and appreciation of the colon

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7 February 2023 - At The Banks - BCCR

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If you have been following the dollar exchange rate, you will have noticed a sharp increase in the last couple of days. Eurobonds, government loan and the aguinaldo (annual bonus) would influence could make the exchange volatile at the end of the year, depending on the decisions of the Central Bank for 2020.

At the moment, there are no major arguments for devaluation

According to economists, the stability in the exchange rate will be the tonic in the remainder of 2019, unlike a year ago, when strikes, the decline in consumption and the fiscal plan led the exchange rate to close the year in the middle of uncertainty.

“The closing of 2019 is going to be very similar to 2017 and the years before this in foreign exchange. For this year, the economy is reactivating due to Eurobonds. In addition, foreign companies make significant payments in dollars to their employees, which affects the current exchange rate. However, at the moment there are no major arguments for the devaluation and rather there would be stability and appreciation of the colon,”  economist Daniel Suchar told La Republica.

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The fluctuations in the exchange rate would range between 1% and 1.2%, which would not bring greater contrasts with the current foreign exchange conditions, several specialists point out.

“In Costa Rica, there are no losers and winners regarding the exchange rate, because what we have is a reality based on a flexible exchange rate and we must be prepared for variations. However, there are no sustained trends to increase or decrease the exchange rate,” said José Luis Arce, director of Analysis and Strategy at FCS Capital.

Expectations about what will happen with the exchange rate for the beginning of next year revolve mostly around the decisions that the Banco Central de Costa Rica (BCCR) – Central Bank  –  makes regarding the “colonization” of income after the placement of debt securities

However, there are those who do not leave everything in the hands of the Central Bank and point to the behavior that other factors may have that are strong indicators of the exchange rate.

“Thinking about what can happen with respect to the exchange rate will depend on imports of raw materials, the behavior of the price of oil and the dynamism of exports. In addition, the interest rates of the Federal Reserve of the United States have come down. The same year, the Legislative Assembly will be pressured for a new placement of Eurobonds, so we must see how this can influence the exchange rate,” said Roxana Morales, an economist at the Universidad Nacional (National University).

 

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