Abundance of Dollars in Costa Rica Pushes the Exchange Rate Down and it would Remain so During the Beginning of 2023

    The time has come for the Central Bank of Costa Rica (BCCR) to announce specific measures to stop this appreciation of the colon, recommend experts

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    Different factors cause an abundance of dollars in Costa Rica. One of them is the high tourist season: more people arrive from abroad from the end of 2022 and this condition is maintained at the beginning of 2023.

    On the other hand, companies begin to bring dollars to the country to pay tax responsibilities at the beginning of the year, which adds to the number of bills in this denomination.

    “As there is a greater abundance of dollars, the price of that good, which is the dollar, begins to drop, begins to decrease,” explained the economist of the National Stock Exchange (BNV), Juan Arias.

    This “abundance” is what has caused the average dollar exchange rate so far in January to have accumulated a drop of ¢17.43.This Thursday, January 12th, the weighted average of the exchange rate in the Foreign Currency Market (Monex) fell to ¢579.91.On December 29th, 2022, the last date the market opened last year, the same indicator closed at ¢597.34.

    “I think the time has come for the Central Bank of Costa Rica (BCCR) to announce specific measures to stop this appreciation (of the colon) which in six months has reached 16%. It is an exaggerated appreciation”, reacted the economist Gerardo Corrales, before the consultations.

    Several reasons justify the abundance of dollars

    The BCCR justifies this appreciation of the colon with several reasons, in addition to tourism.First, he explains that it is not a factor exclusive to Costa Rica. That is, in the international market there was a “moderation” of the demand for foreign currency.

    This higher surplus is due to a larger adjustment in local interest rates than to the adjustment in international interest rates.Also a reversal of the external shock that increased the cost of raw materials and the “significant” reduction in the international cost of maritime merchandise transport.

    On the other hand, there was a lower demand for foreign currency by pension operators in the second half of 2022, greater foreign direct investment and the funds approved by international organizations that the country receives, also in dollars.Such is the case of the credit approved by the Latin American Reserve Fund to the BCCR, for $1.100 million

    Condition will remain

    Economic analyst Daniel Succhar told that these conditions could be maintained until May or June of this year, because the dollars will continue to arrive in the country.”Eurobonds will be arriving, which flood international reserves,” he added.

    Succhar says that it is very likely that the exchange rate will remain floating around ¢600, while Gerardo Corrales considers that it should remain stable at ¢660 and its approximates.

    Arias, from the National Stock Exchange, added that, on the other hand, savings and investments in colones have been stimulated, which causes a lower demand for the currency.People or companies that have debts in dollars, but earn in colones, benefit from this situation.Also importers, who manage to bring their products cheaper.

    On the other hand, the Government, which maintains 40% of its debt in dollars, and other institutions such as ICE, CCSS or INS, whose income is in colones, but part of its debt is in foreign currency, takes advantage of it.

    Those who receive money in dollars and colonize to face national fiscal responsibilities, on the contrary, report losses.Also those workers who earn in dollars but their day to day pay in colones, a situation well known by those who work for transnationals, explained Gerardo Corrales.

    Arias explained that citizens should be aware that there will be greater volatility in the exchange rate, that is, it could suffer abrupt changes from one day to the next.Economist Gerardo Corrales also agrees on this, who pointed out that Costa Rica is a very small (exchange) market, in which any unusual transaction could generate considerable changes.

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