Costa Rica: Central Bank slashes key interest rate in June
June 17, 2020
At its monetary policy meeting on 17 June, the Central Bank of Costa Rica (BCCR) lowered the monetary policy rate (MPR) to 0.75% from 1.25%, after previously lowering it from 2.25% on 16 March. The Central Bank took this latest decision with the aim of addressing disinflationary pressures coming from the coronavirus crisis.
After coming in at 0.6% in May, the BCCR expects inflation to linger below its target range of 2.0–4.0% over the next 18 months. The Bank highlighted how measures taken to control the coronavirus pandemic at home and abroad have resulted in falling economic activity in Costa Rica, both due to a weaker domestic economy and less demand for Costa Rican goods and services overseas. This is causing inflation to weaken, and prompted the Bank to make this latest move.
The BCCR did not give clues as to its next policy action. However, by cutting the MPR once again, it has highlighted its determinedness to support inflation and bring it back into range. If inflation appears unlikely to come back to that range in the coming months as expected, this could prompt a further cut in the MPR. The next policy meeting is set for 22 July.
Author: Edward Gardner, Economist