Cielo Vista

Central Bank hikes savings rate for third time in July

July 25, 2008

The Central Bank announced Wednesday it would increase its base savings rate, this time hiking the measure by 50 points, from 6.5 to 7 percent, the third rate increase this month.

The base savings rate reached a low in mid-April at 4.25 percent. Since then, the Central Bank has increased the mark several times to its current position.

Low interest rates generally encourage consumers to spend or take out loans. Higher rates have the opposite effect, persuading consumers to save and rethink incurring more debt.

Analysts from the Costa Rican finance company Aldesa welcomed the increase.

“We hope the interest rates arrive more or less at (the same level) as expected inflation,” said economic analyst Ana Toyama.

Analysts surveyed by the Central Bank estimated that inflation could reach 12.6 percent for the next 12-month period, according to an Aldesa report. The base savings rate would have to increase by at least 5 percent to meet the cost-of-living.

According to Toyama, the base savings rate is an average of all savings rates in the market for accounts with a maturation of six to seven months.

Public and private banks use the Central Bank´s base savings rate as a reference in choosing their own savings interest rates offered to customers. Toyama said the average market rate was hanging around 6 percent.

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