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Costa Rica Monetary Policy October 2020

Costa Rica: Central Bank stands pat in October

At its monetary policy meeting on 28 October, the Central Bank of Costa Rica decided to maintain the monetary policy rate at its record low of 0.75%, having cut it from 1.25% on 17 June. The Bank’s decision will give continuity to its expansionary and countercyclical monetary policy, in order to bolster the economy and further address the current and projected low inflationary pressures.

The Bank stated that the economy continues to suffer from the pandemic, and while the reopening of economies globally has supported external demand somewhat, domestic demand remains depressed. This, together with low global inflation, is putting downside pressure on domestic prices. As such, the Bank expects inflation to remain well below its 2.0–4.0% target range for the remainder of the year and throughout 2021. Meanwhile, the Bank highlighted other monetary stimulus provided to improve credit conditions in a bid to support economic activity. The package includes a reduction in the minimum reserve requirement and liquidity in national currency, and the creation of a special credit facility of USD 1.2 billion to offer credit at favorable rates to businesses and households affected by the health crisis.

The Bank did not provide clues for its next policy action. However, it reaffirmed its conviction that its loose monetary stance and other adopted measures will yield an improvement in local credit conditions, in time, which will lead to stronger economic activity. Our panelists are divided regarding the outlook for monetary policy, with some expecting further easing before year-end, and others seeing the rate unchanged. However, for 2021, all panelists project the Bank to increase the rate again as the economy slowly starts to recover.

The next monetary policy meeting is scheduled for 16 December.

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