Stable exchange rate drives more Costa Ricans to seek credit in dollars

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July 30^th, 2015 (ICR News) Stability in the exchange rate between Costa Rica’s colon and the U.S. dollar is driving more Costa Ricans to seek dollar-denominated loans, according to the most recent data from Costa Rica’s Central Bank.

Demand for dollar-denominated loans and credit grew an average of 15.5% in June compared to the same month last year.  Overall credit growth was just 7%, half the rate seen a year earlier.  Of overall credit growth, 69% was in dollars.

Costa Rica’s colon has witnessed some twelve months of stability against the dollar, easing the concerns of borrowers to borrow in the foreign currency.  Most borrowers’ earnings are in colones, and these borrowers can be hard-hit when the colon loses ground against the dollar.

Months of stability in the exchange rate, however is driving increased demand for dollar credit, where interest rates paid by borrowers are lower, and the steady exchange rate makes borrowing in dollars seem less risky.

However, the Central Bank has shown some concern about the trend.  In remarks published in June, the Bank expressed its concern that increasing growth of foreign currency transactions in the country increases external risks to the economy.

Still, Costa Rica’s Central Bank has taken an aggressive stance in maintaining exchange rate stability this year.