Thursday, December 16, 2021

Costa Rica raises rate as it begins gradual tightening

      Costa Rica's central bank raised its main interest rate and said its board of directors had agreed to maintain a path of gradual rate rises to keep inflation within its tolerance range of 3.0 percent, plus/minus 1 percentage point.
     The Central Bank of Costa Rica (BCCR) raised its policy rate by 50 basis points to 1.25 percent, its first change in interest rates since June 2020 when it was lowered for the third time last year in response to the COVID-19 pandemic.
     "With this adjustment, the monetary policy stance of the Central Bank continues to be expansive, but is closer to a neutral position," the bank's board said on Dec. 15.
     Today's rate hike comes after the central bank in its monetary policy report last month raised its forecast for growth this year to 5.4 percent from July's projection of 3.9 percent, and the 2022 growth forecast to 4.5 percent from 3.7 percent as the economy returned to pre-pandemic output in the third quarter of this year.
      The board said today the monthly index of economic activity rose by an annualized quarterly rate of 6.4 percent in October and since June it has been above the pre-pandemic level seen in February 2020.
      The central bank also said the output gap was now close to being eliminated and headline inflation has been rising, hitting 3.35 percent in November.
      BCCR forecast headline inflation will remain above 3 percent by the end of this year and in the first half of 2022 but still within the tolerance range.
     Next year headline inflation is expected to moderate and remain below the target in the second half while core inflation will remain below or around the target.
      However, given that risks to those projections are tilted to the upside, the central bank said it considered it appropriate to initiate a process of gradual increases in the policy rate to bring it closer to a neutral stance in an orderly fashion.




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