Costa Rica: Revision of the Monetary Policy Report for 2022-2023

CENTRAL AMERICA - In Brief 01 Aug 2022 by Fernando Naranjo

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The Central Bank of Costa Rica released the third revision of the Monetary Policy Report for 2022-2023 on July 29th. Based on indicators of the first semester, the Bank maintained its GDP growth forecast for 2022 but revised downward the figure for 2023. Real GDP will expand 3.4% y/y in 2022, driven mainly by the still positive external demand and the increase in FDI. Nevertheless, a weaker internal demand is expected in H2 due to the high inflation rate and the deterioration in disposable income. For 2023 the Bank estimates a GDP expansion of 3.2% (Compared to 3.9% y/y in April) GDP increase won’t be as high in 2023 due to a slower global dynamism. Moreover, the lack of fiscal room to stimulate the economy will take its toll in terms of slower growth on the domestic side. Projections of the macroeconomic program are based in the fulfillment of compulsory objectives of the agreement with the IMF. It also has some optimistic assumptions like the approval of external financing loans and international bond placement for $6.0 billion over the next four years. First semester results were better than expected on growth terms. The economy expanded 6.6% y/y. There was also an improvement on the fiscal accounts that allowed the country to comply with the IMF second review of EFF (Extended Fund Facility) in March. The Central Bank maintained the inflation target for both years in the same range of 3% (± 1 pp), assuming inflationary external pressures will normalize in the future. The Bank plans to continue the contractionary monetary policy started in December 2021. The policy rate has gone up from 0.75% to 7.5%. The board of the Central Bank didn´t ruled out further increases i...