Costa Rica: Central Bank maintains interest rate unchanged in September
September 17, 2020
At its monetary policy meeting on 16 September, the Central Bank of Costa Rica (BCCR) decided to maintain the monetary policy rate (MPR) at its record low of 0.75%, having lowered it from 1.25% on 17 June. The Bank’s decision will give continuity to its expansionary and countercyclical monetary policy, in order to support the economy and further address the accentuated disinflationary pressures stemming from the Covid-19 pandemic.
The Bank highlighted how the pandemic has deeply hurt the Costa Rican economy, causing a severe deterioration of the labor market and a dive in the Monthly Index of Economic Activity in July. These developments, together with low global inflation, are putting downside pressure on domestic prices. In July, consumer prices decreased for the first time since June 2016, dropping 0.17%, and only recovering some ground in August with a dip of 0.07%. The BCCR thus expects inflation to remain well below its 2.0–4.0% target range for the remainder of the year. The Bank noted that the monetary stimulus provided in the past 18 months aims to improve job creation and support economic activity.
The BCCR did not give clues regarding its next policy action. However, it reaffirmed its commitment to supporting inflation, therefore it will continue to monitor the evolution of different economic indicators during this time of high uncertainty. If inflation is unable to get back to values within the target range in the coming months as expected, the Bank could make further cuts to the MPR. The next meeting is set for 28 October.
Author: Marta Casanovas , Junior Economist