The Central Bank raises its key interest rates and for savings

The Governing Council of the Central Bank of Costa Rica decided at its meeting on Wednesday, 31 October, to increase the policy interest rate (MPR) by one quarter of a point (25 basis points), so that the indicator is degraded. from 5% to 5.25%.

This decision was announced on November 1 in a statement claiming that the movement was responding to inflationary pressures that could drive this indicator above the upper limit of the target range. (currently between 2% and 4%), in 2019.

"(…) although, currently, inflation is low (the interannual variation of general inflation and underlying inflation was 2.2% and 1.8%, in that order) and as the pace of economic activity has slowed down, the central bank's inflation forecast models suggest that inflation in 2019 could be located above the upper limit of the target range, "explained the Bank.

The main factors that have pushed up the inflation forecast are the transmission effect of the exchange rate hike on the price level and the acceleration of expectations of inflation. ;inflation.

The monetary policy rate is a reference rate; This is the rate that the Central Bank considers compatible with the cost of liquidity at a given moment.

The Central Bank, in its regulations, defines it as follows: "This indicator corresponds to the interest rate used by the Bank: Central Costa Rica to lower the cost of day-long operations in the integrated market liquidity, in a corridor formed by the interest rates of its standing credit and deposit facilities on this market. "[19659002] The last TPM adjustment before October 31 was exactly 10 months ago, when the Central Bank raised the benchmark from 4.75% to 5%.

The Central Bank also reaffirmed on Wednesday its commitment to medium-term inflation of 3% (with a one-point upward or downward shift). down). In this regard, he stressed that it was important to anticipate the inflationary pressures related to the increase in the solvency ratio, as the monetary policy measure acts with a lag of one year. year or more.

"(…) the transmission mechanism of monetary policy actions operates with a lag of one year or more, so that monetary policy decisions should be based on inflation forecasts future, "he said in a statement.

At the same time, the Central Bank raised the gross interest rate on overnight deposits (DON) by 19 basis points to 3.23% a year, as well as interest rates. of its term deposits, with larger increases in the long term, reaching 170 basis points for deposits at 1800 days (about 5 years).

"This increase in the interest rates of Central Bank deposit instruments aims to stimulate savings in colones, particularly in long-term instruments, and ease the pressures on the foreign exchange market ", did he declare.

The president of the monetary authority, Rodrigo Cubero, will give a press conference Thursday morning to deepen the measures.