Costa Rica BCCR Maintains Policy Rate At 9%

• The Board of Directors of the Central Bank of Costa Rica (BCCR) maintained the policy rate at 9% on Dec. 14. The BCCR previously raised the policy rate for a cumulative 825bps across eight consecutive meetings beginning back in December 2021.
• The decision to maintain the policy rate reflects the three consecutive months of declining headline and core inflation as well as the fall in inflation expectations. The headline and core inflation were 8.3% and 5.7% as of November 2022 respectively, while 12-month inflation expectations reached 6%.
• The restrictive policy rate has been deemed effective following the recent decline in inflation, with BCCR noting its expectation to remain in this position to mitigate risks towards the convergence of inflation to the central bank’s 3% target band.
• The improved data led the BCCR to revise its inflationary outlook, with the expectation for headline inflation to now reach the target band some time in H1 2024 compared to H2 2024 from the previous monetary policy meeting.
• Headline inflation is now 390bps below its peak August 2022 level. Monthly economic activity data from October show a further slowdown in the Costa Rican economy, which coincides with the easing of inflation. Economic activity moderated to 2.2% y-o-y in October compared to the 4.9% y-o-y growth through the first ten months.

(Source: LATAM & Caribbean Weekly)