The Central Bank of Costa Rica rejects economic demands from industrial sectors

Several industries in Costa Rica have called on the Central Bank of Costa Rica (BCCR) to implement a series of changes aimed at strengthening the country’s economic stability. Their demands include, among others: adjusting the dollar exchange rate to approximately GBP 620, accelerating the reduction of the monetary policy rate (TPM) and maintaining the internal and external stability of the national currency.

Despite these calls, the BCCR Board of Directors rejected the sectors’ petitions. In terms of maintaining the internal and external stability of the national currency, the bank emphasized that it is already pursuing the goals imposed on it by the organic law without prejudice.

In response to the request for an exchange rate adjustment, the BCCR clarified that there is no concept of a neutral real exchange rate. Additionally, the bank emphasized that an annual devaluation trend cannot be guaranteed from a legal or economic point of view. The entity further noted that since 2006, Costa Rica has abandoned the “creeping peg” system, which caused inflationary inertia and required periodic adjustments to adapt to different economic scenarios.

Regarding the proposal to reduce the monetary policy interest rate from 4.75% to 3.5%, the Council indicated that this proposal would not be implemented. According to the bank, since March 2023, the TPM indicator has been reduced several times to finally bring inflation to the target.

“These reductions move towards a more neutral position. The transmission of monetary policy is not immediate, so we must wait until the adjustments are fully transferred to the economy,” the bank said.

Representatives of Costa Rica’s manufacturing sector have expressed concerns that the bank’s stance is creating uncertainty in the private sector.

“The Central Bank’s position only increases the uncertainty of thousands of workers. In recent days, layoffs and business closures have been announced, with hundreds of families losing income to meet their basic needs,” said Oscar Arias Moreira, interim president of the National Chamber of Agriculture and Agricultural Industries (CNAA).

CNAA noted that it has been warning the Central Bank for several months about the potential adverse effects that the current exchange rate behavior may have on the agricultural sector, which generates approximately 500,000. direct and indirect jobs.

As the debate continues, the Central Bank remains unchanged in its policies, while various sectors call for reforms they believe are necessary to protect the country’s competitiveness and jobs.