Costa Rica: Central Bank raises policy rate in January for second consecutive meeting
At its first meeting of the year on 27 January, the Central Bank of Costa Rica (BCCR) raised the monetary policy rate by 50 basis points to 1.75%, mirroring the move it took at its December meeting.
The Bank cited robust economic growth both at home—economic activity grew firmly in H2 and continued to close the output gap—and among their closest trading partners. Moreover, although inflation remained within the upper bound of the Bank’s 2.0%–4.0% target band, it hit its highest level in nearly seven years. Additionally, worries that rising producer prices could be shifted to consumers were again cited as cause for concern, reinforcing the BCCR’s decision to raise the rate.
In its communiqué, the Bank was very clear regarding their movements this year, announcing that it will gradually continue to move from an expansive to a neutral stance, with rates rising relative to recent historical lows. Furthermore, it explicitly stated that “this implies incremental increases in the monetary policy rate in order to maintain planned inflation over the 24-month horizon within the tolerance range around the target band”. As such, the majority our panelists see rates rising to some degree through 2022.
Echoing this stance, Gabriel Lozano, analysts at JPMorgan, remarked:
“Considering the hefty pace of economic activity last year and lingering upside risks to inflation, we expect the Bank to continue hiking throughout this year. Still, as long as 1-year and mid-term inflation expectations remain anchored below 4%, we believe the Bank will try to avoid too-tight and too-hasty actions. We see rates at 4.25% by June and 5.25% by year-end.”
The next meeting is scheduled for 14 March.