Costa Rica: Central Bank keeps monetary policy unchanged in March
March 17, 2021
At its 17 March meeting, the Central Bank of Costa Rica once again decided to keep the monetary policy rate unchanged at its record low of 0.75%, where it has been since 17 June last year. As such, the Bank opted to continue with its loose and countercyclical monetary policy, in a bid to further support the economic recovery.
The decision came amid the Bank’s assessment that while economic conditions have gradually continued to improve from H2 2020. However, the unemployment rate is still at historically high levels and a large output gap remains as the economy is still underperforming. Moreover, the Bank noted that growth projections depend heavily on the speed of the vaccine rollout globally and the evolution of all variables related to Covid-19, which remain highly uncertain. Regarding price pressures, the Bank sees inflation remaining below the lower bound of the 2.0%–4.0% target band this year and in 2022, enabling it to maintain its expansionary monetary policy stance without putting the inflation target at risk.
Looking at forward guidance, in its communiqué the Bank affirmed its commitment to the current accommodative stance, which it will maintain for as long as it sees inflation remaining below 3.0%. This should help businesses and consumers to align their expectations in terms of future interest rates, thus further supporting the economic recovery. As such, most of our panelists see rates on hold this year, although a few expect the Bank to tighten its stance.
Pamela Ramos, economist at Oxford Economics, reflected on the Bank’s future moves, noting:
“We expect a large negative output gap to keep inflationary pressures at bay, allowing the Central Bank to maintain its policy rate at 0.75% in 2021”
The next monetary policy meeting is scheduled for 21 April.
Author: Marta Casanovas , Junior Economist