2023-09-23 13:00:48
Costa Rica has frozen interest rates at 6.5%, despite the fact that the country has registered year-on-year deflation rates during the last three months.
This decision has been made in accordance with the persistence of certain risks to the economy that are inclined to the upside, such as the effects on prices due to supply shocks associated with climatic phenomena that have materialized, or those generated by agreements of supply reduction, as is the case of hydrocarbons.
These risks would not only have direct implications on local prices, but would also indirectly influence production costs and the process of forming inflationary expectations, as considered by the bank.
Another upside risk is the potential recomposition of the financial instrument portfolio, which could generate an abrupt increase in exchange rate expectations and, in this way, affect inflation expectations.
Based on this assessment, and taking into account the lag with which monetary policy acts, the bank’s board of directors has deemed it advisable to act “prudently” and provide the space required for the process of reducing the rate, with the objective that it continues to be transmitted to the rest of the interest rates in the financial system.
Costa Rica was the first country in Latin America to begin cutting interest rates. However, in its last meeting it decided to pause this cycle due to fear of a rebound in inflation.
In August, the last month with records to date, the price index fell to -3.28% year-on-year, which is mainly due to the reversal of supply shocks of external origin, which include the reduction in the price of hydrocarbons and transportation costs, the reestablishment of global supply chains and the prices of other raw materials lower than those registered in the first half of 2022.
#Costa #Rica #sets #interest #rates