The U.S. Federal Reserve announcement Wednesday of its first interest rate increase in more than nine years is expected to affect about 87 percent of variable interest rates that Costa Ricans and companies here took out on dollar loans.
The Fed raised the benchmark federal funds rate – locked near zero since the recession in 2008 – by a quarter point to a range of 0.25-0.50 percent.
Acobo Financial Group economist Luis Diego Herrera said the announcement would lead to a slight increase in interest rates here for a majority of credits using the U.S. indicator as reference.
Herrera believes interest rates in dollars will increase by 0.25 percentage points, and the change “will increase monthly payments for those who took loans in that currency.”
Data from Costa Rica’s Financial Entities Superintendency, or SUGEF, show that 45 percent of total loans granted by Costa Rica’s banks were in dollars.
Of these, 79 percent were requested by people or companies with incomes in colones, and 87 percent are loans granted at variable rates that will see hikes in monthly payments. The remaining 13 percent of dollar loans were granted at fixed rates and will not be affected by the Fed’s adjustment.
Costa Rican Banking Association (ABC) Executive Director María Isabel Cortés said the Fed’s adjustment is small, and its impact on local interest rates will not be immediate because most local banks anticipated the increase.
“Today’s announcement was not a surprise,” she said.
Cortés said local banks have been preparing for this decision – and others that could come in 2016. The Fed announced it expects to continue to raise rates at a slow, gradual pace next year.
Preparations by local banks, according to the ABC’s director, included periodic evaluations to analyze the repayment capability of all customers seeking loans, both in colones and dollars.
“In these exercises they [banks] use scenarios of higher interest rates or high variations in the exchange rate of dollar, so they won’t be surprised,” she said.
The rate’s increase also is expected to affect the government because it will make it more difficult for the country to obtain loans from abroad. Loans from foreign countries or international agencies traditionally have been one of government’s main strategies to finance the country’s fiscal deficit, estimated this year to reach about 5.9 percent of the gross domestic product, according to the Central Bank.
The Fed’s move also is expected to force Costa Rica’s Finance Ministry pay higher interest on all loans from abroad at variable rates.
U.S. media following the announcement mostly agreed that the rate increase is a signal the Fed is confident about the strength of the U.S. economy and its ability to handle higher borrowing costs.