Costa Rica: Central Bank cuts its monetary policy rate.

CENTRAL AMERICA - In Brief 31 Oct 2019 by Francisco de Paula Gutierrez

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In its October 30th meeting, the Central Bank board cut its monetary policy rate from 3.75% to 3.25%. It is the sixth cut of the rate during this year, taking it from 5.25% as of March 21, 2019 to 3.25%. The decision was justified partially by the slowdown observed in the world economy and the policy reaction by major central banks, but mainly, by the recent evolution of the Costa Rican economy. In fact, the economy is running at a slow pace (1.6% y/y in August), well below its 3.5% y/y potential growth, with relatively high unemployment rate (11.4% in Q3-2019), up from 10.2% registered in Q3-2018, but a moderate inflation rate (2.6% y/y as of September). Inflationary expectations for the next 12 months put the rate at 3.2%, slightly above the mid-point of the Central Bank´s target range (2.0% - 4.0%), despite the impact of the introduction of the VAT.