The central bank will maintain the monetary policy rate at 4.75%

Róger Madrigal, president of the BCCR, said that the current level of the MPR is close to neutral and that, given the delay in its transmission to the rest of the economy, it would be better to act cautiously and pause rate cuts to leave room for the transmission process, especially for active market rates.

The MPR has been lowered three times so far this year, from 6% to the current 4.75%. There is also a decrease in 2023, as the indicator starts that year at 9%.

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Madrigal also said they still have no guarantee that the price cuts are over. “What some parts of the academy are thinking about, not only in Costa Rica, is that as long as countries that attract capital, such as the United States, also lower their rates, there is room for further cuts,” he said at a press conference after the monetary policy meeting.

Currently, Costa Rica’s MPR is lower than the Fed rate (5.25% – 5.50%), which has never happened in the 18 years since the MPR was registered on the BCCR website. The Fed is expected to cut interest rates once in 2024.

Costa Rica’s inflation rate has now been below 0% for 12 consecutive months, a phenomenon that has only occurred in the country’s recent history: between 2015 and 2016.

Since February 2022, the country has had only one month (April 2023) within the tolerance range of ±1 percentage point of its 3% inflation target.

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The central bank expects inflation to return to positive territory in the second half of the year, but will not enter the tolerance range until the first quarter of 2025. In addition, the inflation risk assessment is tilted upward.

Upside risks include supply shocks from global trade fragmentation (geopolitical conflicts and weather phenomena) and disorderly dollarization of portfolios. Downside risks are weaker-than-expected economic growth in trading partners and a slow pass-through of MPR adjustments to lending rates.