Central Bank Buys Up $$ in Record Numbers

February 15, 2008

The Central Bank bought up nearly half a billion dollars on the Costa Rican MONEX market during January, setting a record for monthly dollar acquisitions and signaling that pressure on the colón to gain more value against the dollar is still high. Total dollar acquisitions came to $442.2 million for the month.

Analysts say there are more dollars in the market due to a combination of maturing government bonds and investors switching dollar positions to colones on speculation that the Central Bank will allow the colón/dollar exchange rate to drop in the mid-term.

A flood of dollars in the Costa Rican market pushes up the value of the colón, something the Central Bank tries to control by purchasing those dollars and issuing colones.

That action, however, tends to increase inflation – something the Central Bank has committed to controlling for 2008 – fueling speculation that the bank will choose to lower the bottom limit on the exchange rate instead.

 

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