Wednesday, December 16, 2020

Costa Rica maintains rate, to continue with easy policy

      Costa Rica's central bank left its key interest rate steady, saying there is room to continue with loose monetary policy as inflation is forecast to remain below the lower limit of its tolerance range in 2021 and 2022.
     The Central Bank of Costa Rica (BCCR) kept its monetary policy rate at 0.75 percent after cutting it three times this year by a total of 200 basis points. 
     Since March 2019, BCCR has cut its rate 10 times and by a total of 450 basis points.
     Although the gradual lifting of measures to limit the spread of COVID-19 has allowed a moderate recovery of economic activity and in the labour market, BCCR said economic output remains below its potential and the index for economic activity in October fell 6.6 percent year-on-year, the unemployment rate was 21.9 percent and demand for credit continues to stagnate.
     Costa Rica's economy contracted 8.3 percent in the second quarter from the first quarter and in October the central bank revised upwards its forecast for the economy to shrink 4.5 percent this year from its earlier forecast of a 5.0 percent decline.
     For 2021 Costa Rica's economy is expected to expand by 2.6 percent compared with 2019's 2.1 percent expansion.
     The pandemic has accentuated the country's disinflationary pressures since 2019 and in November the inflation rate fell to 0.24 percent from 0.45 percent in October, well below the central bank's tolerance range of 2.0 to 4.0 percent.
     In addition, market expectations for inflation 12 months ahead were 0.9 percent in November.


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