Costa Rica: Central Bank cuts rates in April
At its meeting on 24 April, the Central Bank of Costa Rica (BCCR) unanimously decided to reduce the Monetary Policy Rate (MPR) by 50 basis points, setting it at 4.75%. The move marked the fifth successive reduction and brought the cumulative rate cut to 425 basis points since March 2023.
The Bank’s decision to cut rates further was influenced by the recent behavior of inflation and the risks to the price outlook. Consumer prices decreased year on year every month between June 2023 and March 2024, thus remaining well below the 2.0–4.0% target range; moreover, the risks to the inflation outlook remain skewed to the downside, according to the BCCR, and include a weaker-than-expected transmission of monetary policy and softer-than-anticipated activity among Costa Rica’s main trading partners. That said, the Bank likely eschewed cutting rates more sharply as inflation expectations remain within target; furthermore, the Bank itself sees prices rising again in H2 2024 and expects inflation to return to target in early 2025.
The Central Bank did not provide explicit forward guidance. Instead, it indicated that future changes to its policy rate will continue to be “gradual” and “prudent”, aiming to respond “opportunely” to changing macroeconomic conditions and economic risk assessments. Our panelists expect the Bank to lower rates further by year–end.
The next meeting is set for 20 June.