Costa Rica: Central Bank keeps rate unchanged in July
July 21, 2021
At its 21 July meeting, the Central Bank of Costa Rica once again decided to hold fire, keeping the monetary policy rate unchanged at its record low of 0.75%—where it has been since 17 June 2020. As such, the Bank opted to continue its loose and countercyclical monetary policy stance, aiming to provide further support to the economic recovery and boost job creation.
The decision came against the backdrop of an ongoing recovery in the domestic economy—economic activity grew in March–May and the labor market also continued to improve, albeit at a slower pace. That said, the Bank noted that a sizable output gap remains as the economy is still below pre-pandemic levels, thus a rate hike was not pertinent. Moreover, despite accelerating in Q2, price pressures remain low—June’s inflation came in at 1.9%, below the lower bound of the 2.0%–4.0% target band—and the Bank deemed the increase to be the result of a low base effect and transitory factors. The Bank’s projections for inflation in the next 12 and 24 months are 1.0% and 1.7%, respectively, further cementing its decision to hold the rate steady.
Looking ahead, in its communiqué the Bank did not provide any explicit forward guidance but reiterated its slightly more hawkish tone from June’s meeting, after removing its previous statement that it would continue its loose monetary policy stance for as long as inflation remained below 3.0%. The majority of our panelists still see rates on hold at 0.75% this year.
The next monetary policy meeting is scheduled for 15 September.
Author: Marta Casanovas , Junior Economist