Costa Rica: BCCR Slows Pace Of Easing
- The Central Bank of Costa Rica (BCCR) announced a 50bps rate cut in its meeting on June 14th, placing the policy rate at 7%. The latest cut followed the 100bps reduction back in April and was the third consecutive rate cut for a cumulative 200bps in easing since March.
- There were anticipations for another 100bps cut given the sharp decline in both general annual and average inflation, which came in at 0.9% and 2.5% in May respectively. This is a notable decline in annual inflation from the 12% peak in August 2022 and places it below the BCCR’s 3% ±1%. target band.
- The BCCR models inflation to remain below the lower band for the remainder of 2023 and does not rule out negative inter-annual variations. Despite this, the BCCR sees the balance of risks to inflation as being inclined to rise over the medium term and noted that the Board decided to move forward “gradually and prudently” towards a less restrictive monetary stance.
- The 50bps cut will be disappointing to the private sector, with 12 business chambers suggesting a 200bps reduction for this past meeting.
- José Jenkins, president of the Costa Rican Union of Chambers and Associations of the Private Business Sector (Uccaep), urged the rate cuts last week so that the BCCR could “effectively guarantee the internal and external stability of the national currency, in order not to compromise the national productive base, provide confidence to the different economic agents of the country and promote the generation of formal employment".
(Source: Oppenheimer)