Central Bank Announces Goals, Exchange Rate Change

February 2, 2007

The Central Bank estimates that Costa Rica will see a 5% increase in its gross domestic product (GDP) and 8% inflation this year, said the bank’s president, Francisco de Paula Gutiérrez, Tuesday during a press conference.

Costa Rica’s main goal this year is to reduce inflation from the 9.46% registered at the end of last year to 8%, according to Central Bank economist Eduardo Méndez.

For 10 years before that, inflation in Costa Rica had remained above 10%, reaching a peak in 2005 with 14%.

Foreign direct investment is expected to decrease from the $1.4 billion seen last year to about $1.17 billion this year, Gutiérrez said, explaining that last year’s investment boom is not a pattern that’s likely to continue.

He called these predictions “normal” and said that last year’s elevated growth was not sustainable, adding that slowed growth should not be taken as a bad sign for the national economy.

Last year was a “very good year” for Costa Rica, and 2007 will be a time to “stabilize and consolidate achievements,” he said.

As long as international fuel prices remain stable and there are no dramatic changes in the world, the Costa Rican economy will continue improving, he said.

Also this week, the Central Bank changed the price ceiling and floor of the currency band system it launched last October (TT, Oct. 13, 2006). The “crawling band” system was implemented to allow the Central Bank more flexibility in controlling inflation. Over time, the floor and ceiling of the band are to grow apart, said Méndez, which is why as of Wednesday the bank widened the floor and ceiling.

The ceiling went from a ¢0.14 daily increase to a ¢0.11 daily increase, while the floor went from a ¢0.06 daily increase to a flat rate of ¢519.16 per U.S. dollar.

That is the price the Central Bank buys dollars from the nation’s financial institutions; under the new system, banks and other businesses can offer whatever exchange rate they wish to their customers.

 

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