Costa Rica Cuts Policy Rate by 100 bps to 7.5%

• The Central Bank of Costa Rica lowered its benchmark interest rate by 100 basis points (bps) to 7.5% during its policy meeting on April 20, 2023.
• This followed a 50 basis point decrease in March which was the first rate cut in four years. Between December 2021 and October 2022, the Central Bank of Costa Rica (BCCR) raised the policy rate from 0.75% to a peak of 9%.
• Headline inflation and the average of core inflation indicators have shown a sustained downward behaviour since last September, reaching in March of this year inter-annual rates of 4.4% and 4.3%, although above the upper limit of the target range (3.0% ± 1 percentage point).
• The BCCR’s rate-setting board said there was space for “a less restrictive monetary policy posture”. The BCCR also acknowledged that uncertainty prevails in the global economy and that inflation has remained above the target ranges of central banks while the Core inflation indicators have shown greater downward rigidity.
• However, the recent tensions in the financial markets linked to the failures of some US banks could negatively affect the credit conditions in advanced economies, with adverse effects on international economic activity.
• The Central Bank of Costa Rica expects the 12 and 24-month annual inflation rates to come in at 4.9% and 4%, respectively.

(Source: Central Bank of Costa Rica)