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Costa Rica Monetary Policy January 2023

Costa Rica: Central Bank keeps policy rate on hold for a second consecutive meeting in January

At its 25 January meeting, the Central Bank of Costa Rica (BCCR) kept the policy rate unchanged at 9.00%. It was the second consecutive meeting with no policy changes after eight successive rate hikes since the start of the tightening cycle in December 2021.

The decision came after inflation and median 12-month inflation expectations declined in December for the fourth consecutive month. The BCCR now projects that headline inflation will return to the target range of 2.0–4.0% in Q4 2023, earlier than anticipated at the previous meeting. Moreover, the Bank projects that core inflation will return to target in H1 2024.

In terms of guidance, the BCCR stated that, absent the materialization of any upside risks to inflation, further policy tightening is not on the table. That said, the Bank emphasized that producer price pressures—although they have slowed—could still be passed through to consumer prices. Meanwhile, all but one of our panelists project rate cuts by the end of this year.

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

“We anticipate a neutral message in the next couple of meetings as the economy continues to decelerate gradually, and considering the currency has notably strengthened in the last 12 months; but the message is expected to change in 2Q with the reaction function aiming at lower rates sooner rather than later. We foresee the start of the easing cycle in June, with a 50bps cut.”

The next meeting is scheduled for 15 March.

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