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Costa Rica Monetary Policy January 2021

Costa Rica: Central Bank maintains monetary policy at January meeting

At its meeting on 27 January, the Central Bank of Costa Rica opted to leave the monetary policy rate at its record low of 0.75%, having cut it from 1.25% on 17 June last year. With this decision the Bank gave continuity to its accommodative and countercyclical monetary policy, in a bid to support the economy.

The Bank stated that despite the gradual recovery in economic activity through the second half of 2020, uncertainty remains highly elevated as a strong rebound will depend on the country’s ability to contain the spread of Covid-19 and the speed of the vaccine rollout. Moreover, the Bank noted that the economy is underperforming: The output gap remains large and the unemployment rate is still close to record levels. Furthermore, the Bank sees inflation remaining below the lower bound of the 2.0–4.0% target band during 2021 and 2022.

In its communiqué, the Bank reaffirmed its belief that the current loose monetary policy and the other adopted measures have translated into lower real interest rates. As such, the Bank will continue its wait-and-see approach until the measures spill over into the real economy and have a positive effect on activity and the labor market. Consequently, most of our panelists expect the Bank to keep the rate unchanged in 2021, although some expect it to start hiking rates.

The next monetary policy meeting is scheduled for 17 March.

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