Money in Costa Rica

Costa Rica - Money

Central Bank carries out fourth consecutive rate hike at April meeting

At its 27 April meeting, the Central Bank of Costa Rica (BCCR) raised the monetary policy rate by 150 basis points to 4.00%, marking the fourth consecutive hike since December 2021.

The decision came amid the highest inflation figure since November 2014 in March and thus went further above the upper bound of the Bank’s 2.0–4.0% target band. The Bank also noted that price pressures are expected to remain elevated over the next few months as a result of higher commodity prices due to the ongoing war in Ukraine. Furthermore, strong economic momentum at the outset of 2022 provided the Bank with room for the hike.

While the Bank did not provide a concrete forward-looking statement, it reiterated its commitment to low and stable inflation over the medium term as well as its dedication to reaching a neutral policy stance faster. Looking ahead, the prolongation of the war in Ukraine and global supply constraints stand in the way of price normalization: As such, the majority our panelists see rates rising even more aggressively through 2022.

Commenting on the outlook, Gabriel Lozano, chief economist at JPMorgan, commented:

“Unsurprisingly, upside risks to inflation remain, on the back of geopolitical tensions, supply shortages, and FX passthrough concerns in the context of the Fed’s hawkish narrative, and also given existing pressures on producer prices, which reached 15% on annual terms in March. We now expect inflation at 6.2% this year, peaking near 7.5% in 3Q. We see BCCR hiking another 150bp at its next meeting in June, gradually reducing the size of the clips in 2H22 and reaching 7% by year-end.”

The next meeting is scheduled for 15 June.

Our panelists are currently updating their projections, and a new Consensus will be published on 17 May.