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Costa Rica Monetary Policy September 2019

Costa Rica: Central Bank again cuts rates in September

At its 18 September monetary policy meeting, the Central Bank of Costa Rica took market analysts by surprise and cut the policy interest rate to 3.75% from 4.00%.

The Central Bank delivered its fifth interest rate cut this year as part of efforts to boost economic growth. Moreover, inflation was unchanged in August at July’s 2.9% as weak-demand pull inflationary pressures have countered the effect of the VAT introduced in July, which has continued to stoke inflationary pressures. Looking ahead, the Central Bank foresaw inflation remaining within its 2.0%–4.0% target range in the short-term. Taking this into account, and bearing in mind that interest rates have recently been cut abroad, most notably by the U.S. Federal Reserve, the Central Bank of Costa Rica concluded it had room to make its fifth rate cut this year.

Going forward, many of our panelists expect the Central Bank to continue pushing ahead with interest rate cuts to help boost the economy, although the extent to which it can continue cutting rates will be limited by how much of an inflationary impact the cuts have and whether central banks abroad, particularly the Federal Reserve, continue to adopt a dovish stance too.

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