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Costa Rica Monetary Policy September 2022

Costa Rica: Central Bank raises policy rate by 100 basis points at September meeting

At its 14 September meeting, the Central Bank of Costa Rica (BCCR) raised rates by 100 basis points, bringing the policy rate to 8.50%. September’s decision marked the seventh consecutive hike since the start of the tightening cycle in December 2021.

Persistent price pressures and surging inflation expectations prompted another round of tightening from the Central Bank. Inflation reached an over 13-year high in August. Furthermore, in a survey conducted by the Bank, inflation expectations for the coming year increased in August to 9.5%, up from 8.0% in July, pointing to the risk of second-round inflation effects.

Compared to July’s meeting when the Central Bank stated clearly that further tightening was warranted, this time forward guidance was less explicit. However, the Bank’s tone remained hawkish as it emphasized the surge in both inflation and inflation expectations. Our panel expects another 66 basis points of tightening by the end of the year.

On the decision and the outlook, JPMorgan analysts commented:

“While a less aggressive move was facilitated by a stronger currency and a softer core print in August, the message remained hawkish […]. Inflation will still end the year at 11.3% having peaked last month, but well behaved core inflation and expectations for inflation to ease towards 3.8% in 4Q23 should allow the BCCR to end its cycle at 9.75% in December, versus the prior 10.25% peak we had previously envisioned.”

The next meeting is scheduled for 26 October.

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