Costa Rica: Central Bank keeps policy rate unchanged in October
October 26, 2021
At its meeting held on 25 October, the Central Bank of Costa Rica (BCCR) kept the monetary policy rate unchanged at its record low of 0.75%—where it has been since June 2020. Consequently, the Bank opted once again to continue its loose and countercyclical monetary policy stance, in a bid to further bolster the economic recovery and boost job creation.
The decision came amid an ongoing economic recovery and subdued price pressures. Economic activity remained strong in September, marking the fourth consecutive month of double-digit growth amid a consistent performance across all sectors. However, the readings have continued to be bolstered by a favorable base effect—as the same period last year saw similarly sharp contractions—and the Bank noted that unemployment levels remain high, thus a rate hike was not suitable for the time being. Additionally, despite accelerating on average in July–September, price pressures remain relatively low. September’s inflation came in at 2.1%, just within the lower bound of the 2.0%–4.0% target band, but the Bank deemed the increase to be the result of transitory factors, further cementing its decision to hold the rate steady.
Looking ahead, the Bank noted that although inflation remains within its target band, the recent pickup in price pressures could become a cause for concern in the future. As such, the BCCR took a more hawkish tone than in recent months, explicitly stating that it “will remain vigilant, and will adopt in a timely manner the actions required to keep the inflation forecast within the tolerance range”. All but one of our panelists still see rates on hold at 0.75% at the Bank’s final meeting of the year, scheduled for 15 December.
Author: Jonuel Pérez, Junior Economist