Costa Rica May
Step Up Currency
‘Interventions,’
New Central Bank
President Says
Costa Rica's new
president of the
Central Bank
told Bloomberg
news that the
bank may
intervene more
frequently in
the
foreign-exchange
market to reduce
swings in the
currency.
The comments
made by Rodrigo
Bolaños to
Bloomberg
reinforce his
comments made
earlier this
week that her
would be moving
away from the
Banco Central de
Costa Rica (BCCR)
policy of
exchange bands
to a floating
exchange rate.
(See story
http://www.insidecostarica.com/dailynews/2010/june/16/costarica10061601.htm).
“We’re looking
at the
possibility of
interventions,”
Bolaños, 59,
told Bloomberg
phone interview
from San José.
“We would want
to smooth
fluctuations
from one day to
the next.”
Bolaños takes
over from
Francisco de
Paula Gutiérrez
who is retiring
as the Central
Bank after seven
years of leading
the monetary
policies of the
country, During
the Gutiérrez
management
he changed the
exchange-rate
regime from a 23
year-old system
of
“mini-devaluations”
in 2006.
Costa Rica’s
colon has surged
6.9% this year
against the U.S.
dollar, the
second-best
performance in
the world after
the Colombian
peso, according
to data compiled
by Bloomberg. It
is trading at
¢525.10 for the
buy and ¢535.21
for sell, today.
The colon floats
within a
“crawling band”
set by the
central bank to
maintain a
stable currency
and help keep
inflation in
check. The bank
hasn’t bought or
sold dollars to
intervene since
August 2009.
Bolaños, who has
a doctorate in
economics from
the University
of Chicago, said
he wants to move
the Colon from
its “crawling
band” to a
“dirty float” by
the end of his
four-year term.
In the meantime,
he’s evaluating
whether to buy
and sell dollars
more frequently
to ease currency
fluctuations
fueled by global
market swings.
The band ranged
from 500 to
634.25
yesterday,
according to the
central bank’s
website.
Costa Rica's
Vice-President,
Luis Liberman,
the founder of
the Interfin
Bank and former
head of the Bank
of Nova Scotia
in Costa Rica (Interfin
was sold to
Scoita), said
before taking
office on May 8
the central bank
should
“intervene” in
the currency
market to
curtail
volatility that
has cut profits
for exporters.
The currency is
benefiting from
the so-called
carry trade, in
which investors
borrow in
nations with low
interest rates
to buy
higher-yielding
assets, Liberman
said.
“They want to
reduce the
volatility by
intervening in
the middle of
the trading
band,” said
Boris Segura, a
Latin America
economist at RBS
Securities Inc.
in Stamford,
Connecticut. He
was an adviser
to Bolaños in
1995, during his
first term as
the bank’s
president.
The central bank
is seeking to
introduce a
forwards market
by next month
that would allow
exporters to
lock in exchange
rates, Bolaños
said.
Costa Rica may
need to
“tighten”
monetary policy
to slow
inflation that
may exceed the
central bank’s
target range of
4 percent to 6
percent for
2010, the
International
Monetary Fund
said June 1 in a
review of the
country’s
performance
under a 15-
month, $735
million
emergency credit
line.
Bolaños said he
has no immediate
plans to revise
the inflation
target.
The central bank
may increase its
2010 growth
forecast to more
than 4 percent
next month, up
from 3.2
percent, he
said.
Costa Rica’s
us$29.4 billion
economy will
grow 3.8 percent
this year, the
second-fastest
in Central
America after
Panama’s
estimated 5
percent
expansion, the
IMF said in a
statement June
9. Gross
domestic product
shrank 1.1
percent in 2009.
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