The Board of Directors at the Central Bank of Costa Rica (BCCR) faced a wave of criticism this week over its decision to implement a minor 0.25 percentage point interest rate cut despite calls for more aggressive action.
The BCCR’s Monetary Policy Rate began 2023 at 6%. However, the Costa Rican Union of Chambers and Associations of the Private Business Sector (UCCAEP) urged the Bank to slash rates by a full percentage point to 5% given favorable economic conditions.
Instead, the Bank’s leadership, headed by Chairman Roger Madrigal, diverged — approving only a quarter point reduction to 5.75%. They cited potential risks from external factors like weather and geopolitics.
In response, the UCCAEP issued a stern rebuke, accusing most Directors of “irresponsibility” in ignoring advice from experts and business community pleas. The group predicted negative impacts on investment, jobs and operations from the decision.
“The Central Bank has lost sight of its dual mandate to provide currency stability while enabling orderly economic development,” the statement read.
Sergio Capón, President of the Costa Rican Chamber of Industries (CICR), agreed the marginal cut would not “rapidly lower high interest rates, reduce excess dollars, nor halt the falling exchange rate.”
Bank leaders defended the conservative approach by pointing to excess liquidity and possible spikes in inflation and exchange rate fluctuations if portfolios shift in response.
But legislators and stakeholders across Costa Rican commerce resoundingly criticized the Bank for excessive caution over proaction. Citizen Action Party leader Johnny Leiva accused Directors of being “stuck in the past,” while Social Christian Unity’s Elias Robles said the Bank “shirked its economic responsibilities once again.”
Business leaders called for more decisive monetary interventions to fuel growth and opportunity. By contrast, the Central Bank’s modest rate adjustment citing external ambiguities seemed to signal risk aversion would continue to dictate policy over local expert guidance or entrepreneur calls-to-action.
