Costa Rica's BCCR To Continue Easing In 2024 As Deflation Persists Through Q1 2024

• The Banco Central de Costa Rica cut its policy rate from 6.00% to 5.75% and signalled that further cautious easing was on the way at its January 18 meeting.
• This was the seventh-consecutive reduction by the bank and the third-consecutive 25bps cut, which brought total easing in the current cycle to 300bps.
• The bank’s statement acknowledged that the country has been in deflation for some time, though it flagged risks such as high domestic economic and wage growth and the potential for conflict in the Middle East to drive up oil prices. In addition, it reiterated that it intends to continue easing at a gradual and cautious pace.
• That said, Fitch expects the rate to drop to 4.50% by end-2024, as inflation remains below target through the year due to steady oil prices and moderating economic activity.
• However, risks exist in both directions. On the upside, the conflict in the Middle East could send oil prices higher. At the same time, to the downside, the central bank could opt for a more aggressive approach if domestic economic data deteriorates more quickly than expected.

 (Source: Fitch Solutions)