Costa Rica: Central Bank keeps monetary policy unchanged in December
December 17, 2020
At its monetary policy meeting on 16 December, the Central Bank of Costa Rica decided to maintain the monetary policy rate at its record low of 0.75%, having cut it from 1.25% on 17 June. The Bank’s decision will give continuity to its expansionary and countercyclical monetary policy, in order to bolster the economy and further address the current and projected low inflationary pressures.
The Bank stated that economic activity and the labor market have started to recover mildly, thanks to the lifting of pandemic-related restrictions both domestically and in the country’s trading partners. However, inflation has remained below the lower bound of the 2.0–4.0% target band since May, and the Bank expects it to remain subdued throughout 2021 and 2022. As such, the Bank noted that it has enough room to continue its current loose monetary policy without jeopardizing its inflation target. Meanwhile, the Bank has deployed other measures to improve private credit conditions in a bid to inject stimulus into the real economy and support the recovery.
The Bank reaffirmed its conviction that its loose monetary stance and other adopted measures will yield an improvement in local credit conditions, in time, which will lead to stronger economic activity. As such, some of our panelists project the Bank to leave rates unchanged throughout 2021, although a number of others see rates rising again as the economy slowly starts to recover during the year.
Regarding inflation, Pamela Ramos, an economist at Oxford Economics, noted:
“Inflation has consistently undershot the central bank’s target range since the pandemic began […]. A large negative output gap means that the recent depreciation seen in the exchange rate is not likely to alter this trend, and we still expect inflation to remain subdued in 2020–21.“
Author: Marta Casanovas , Junior Economist