Costa Rica Central Bank expects to maintain inflation goal for this year

Inflation in January and February showed significant increases, driven mainly by hikes in public services taxes – including water and electricity – and in fuel prices. Nevertheless, Central Bank officials said there is no need to change the government’s goal of 4-6 percent for 2013 inflation, a report released this week said.

“What the government needs is to implement measures to contain the growth in the Consumer Price Index and bring it back into the inflation goal range,” Central Bank President Rodrigo Bolaños said.

He said officials expected a similar economic situation to that of 2012, but with a lower colón interest rate, “as long as the country manages to cut the incentives to short-term foreign investments that saturated the market last year.”

These inflows of capital forced the Central Bank to buy more than $1.5 billion to prevent the currency from falling below the lower-band limit of ₡500.

Costa Rican Vice President Luis Liberman also said he is optimistic, mainly because state banks this year have been able to reduce the excess of cash caused by these investments, thereby maintaining affordable interest rates for those in need of credit.

However, Liberman also said it is urgent that lawmakers approve a bill to prevent these types of short-term investments from entering the country. The purported law would tax by up to 30 percent short-term currency investments.

“We were able to significantly collect excess cash at this time, and unless a spike in these short-term investments occurs, surpluses are manageable,” Bolaños said.