July 25, 2021

Costa Rica has used 1,101 million dollars to balance the exchange rate

Costa Rica has used 1,101 million dollars to balance the exchange rate



The Central Bank of Costa Rica reported today that so far in 2018 has used 1,101.8 million dollars of international reserves to intervene in the dollar exchange market and avoid abrupt movements.

"The Central Bank used 1,101.8 million of its NIR (net international reserves) so far this year. The purpose of these interventions has been to ensure an orderly process of price formation and avoid abrupt movements in the exchange rate. ", the entity said in a statement.

According to the data of the bank, the exchange rate of the dollar to October 11 has experienced a growth of 4.1 percent year on year with respect to the colón, the local currency.

The Central Bank explained that it has intervened in the market in two ways: the first through direct sales of 240.9 million dollars to avoid abrupt changes in the exchange rate.

The second is an indirect way in which it sold foreign currency to the non-banking public sector for 860.9 million dollars.

The bank said that this type of operation is part of the managed float exchange regime that has been applied in Costa Rica since February 2015, in which the exchange rate responds to the supply and demand conditions that prevail in the market.

"In this regime, the Central Bank does not assume any commitment with a particular exchange rate value, but it intervenes in the market with purchases and sales of foreign currencies, in order to ensure an orderly process of price formation and to prevent abrupt movements in the exchange rate, "explained the entity.

According to the bank, in recent months there has been less availability of foreign exchange in the Costa Rican market for various reasons, such as a seasonality pattern for this time of year and the fiscal deficit that in 2017 was 6.2 percent of the Gross Domestic Product. (GDP) and that for 2018 is projected to 7.1 percent.

"It influenced the difficult fiscal situation that has meant that the Ministry of Finance went from being a net offeror of foreign currency to being a foreign currency demander for important amounts," the Bank said.

The entity added that the fiscal deficit also "has generated uncertainty and nervousness in some economic agents, which in turn has driven the demand for foreign currency by the public."

Last week the Congress approved in the first of two necessary votes a tax reform that seeks to alleviate the deficit and generate confidence in local and international markets.

The second vote on the reform will depend on the result of a series of consultations with various public institutions, including the Judiciary and the Constitutional Chamber.

The government of the Costa Rican president, Carlos Alvarado, considers tax reform a priority, but the initiative is rejected by the public sector unions that started a strike on September 10, which still remains but with weak support.

The reform transforms the sales tax of 13 percent into one of value added (VAT) of the same rate but that taxes the services.

It also contains cuts to expenses such as salary bonuses, changes in income tax, global income and capital income, among other matters.

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