Costa Rica: Central Bank restarts easing cycle in October
At its latest meeting on 25 October, the Central Bank of Costa Rica (BCCR) cut the monetary policy rate to 6.25% from 6.50%. The move followed September’s hold, which came after four consecutive rate cuts.
The decision to cut rates again was driven by persistent deflation; in September, prices fell for the fourth consecutive month, clocking a deflation rate of 2.2%, well below the 1.0–3.0% inflation target range. The Bank stated that it sees price pressures picking up in the remainder of the year and expects inflation to return to target in H1 2024. That said, it reiterated that risks were skewed to the upside and that they stem from commodity supply shocks, driven by oil supply restriction agreements, conflict in the Middle East and adverse weather conditions.
The BCCR’s communiqué did not provide explicit forward guidance. It stated that it will continue to monitor inflation and its determinants with the aim of adopting the necessary policies to ensure the colón’s stability. Our panelists see the Bank cutting rates again in the coming meetings.
The next meeting is scheduled for 20 December.
Analysts at the EIU commented on the outlook: “We expect a return to inflation in the coming months, when the year-on-year base softens. However, this will not deter the BCCR from continuing its easing cycle, unless price pressures rise much more sharply than anticipated.”