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Costa Rica Monetary Policy March 2023

Costa Rica: Central Bank cuts the policy rate for the first time since June 2020 in March

At its 15 March meeting, the Central Bank of Costa Rica (BCCR) cut the policy rate by 50 basis points to 8.50%. It was the first rate cut since June 2020 and marked the end of the tightening cycle that started in December 2021.

The decision came amid a visible slowdown in inflation and 12-month inflation expectations, which have been declining since September 2022 and August 2022, respectively. Moreover, the Bank noted that producer prices are now exerting less pressure on consumer prices. The BCCR continues to expect that headline and core inflation will return to the target range of 2.0–4.0% in Q4 2023 and H1 2024, respectively.

In terms of guidance, the BCCR sent a broadly dovish signal, stating that, despite persistent upside risks to inflation, “there is room for the monetary policy stance to be less restrictive”. Our panelists also expect the Bank to cut rates further throughout the year.

On the decision, Gabriel Lozano, analyst at JPMorgan, commented:

“While the recent inflation prints suggested consumer prices would converge to target earlier than the CB expected, growth resiliency and the recovery in commodity prices were congruent with BCCR in a neutral stance a bit longer, in order not to jeopardize the anchoring of expectations and the Bank’s credibility.”

The next meeting is scheduled for 20 April.

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