Central Bank Searching A Happy Money Medium

May 9, 2008

For the second time this year, the Central Bank escaped binging on dollars in the exchange market, according to information released by the local finance company Aldesa.

The bank has been forced most weeks to absorb dollars, preventing the colón from bouncing below the established lower exchange limit. A flood of dollars into the Costa Rican market pushes up the value of the colón, something the Central Bank tries to control by purchasing those dollars and issuing colones.

That action, however, tends to increase inflation – something the Central Bank has committed to controlling for 2008 – fueling speculation that the bank will choose to lower the bottom limit on the exchange rate instead. Inflation was 3.12 percent in the first quarter.

In the first five months this year, the Central Bank has purchased $1 billion off the exchange market. That pace would mark a steep increase over 2007, when it bought roughly $1.4 billion all year.

A major national bank raised the amount at which it sells dollars on Wednesday by roughly ¢5, according to the daily La Nación.

Banco Nacional raised its selling rate to ¢501, while its buying rate was reset at ¢495 from ¢490.25. The bank did not provide a reason for the move.

 

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