Seven external and internal factors could affect the exchange rate of the dollar against the colón, according to economist Norberto Zúñiga, a consultant at Ecoanálisis. The specialist included among those variables international prices, interest rates, foreign trade, foreign investment, market expectations, and the fiscal outlook.
The first factor relates to geopolitical conflicts, which have driven up the prices of oil, raw materials, and food. That context makes Costa Rica's imports more expensive and can increase the need for foreign currency.
The country's oil bill grew by nearly 50% during the first nine months of the year. The increase came on top of an international environment of higher interest rates.
Yields on United States Treasury bonds reached 5.30% for 10-year securities and 5.60% for 30-year bonds. According to Zúñiga, the returns on those instruments can attract capital to the United States and influence the demand for dollars in other markets.
"It is clear that it will be a trigger that, sooner rather than later, will increase the demand for foreign currency," the consultant told CRHoy. The economist clarified that it is not possible to establish the magnitude of net capital outflows from Costa Rica.
Exports and investment are among the variables being watched
The evolution of exports of goods and services constitutes another of the ele…
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Economist Norberto Zúñiga identified seven internal and external factors that will influence the dollar exchange rate in Costa Rica. (REUTERS/Kham)
Seven external and internal factors could influence the dollar's exchange rate against the colón, according to economist Norberto Zúñiga, a consultant at Ecoanálisis. The specialist included among those variables international prices, interest rates, foreign trade, foreign investment, market expectations, and the fiscal outlook.
The first factor relates to geopolitical conflicts, which have driven up the prices of oil, raw materials, and food. That context makes Costa Rica's imports more expensive and can increase the need for foreign currency. The country's oil bill grew by nearly 50% during the first nine months of the year.
The increase came on top of an international environment of higher interest rates. Yields on United States Treasury bonds reached 5.30% for 10-year securities and 5.60% for 30-year bonds. According to Zúñiga, the returns on those instruments can attract capital to the United States and influence the demand for dollars in other markets.
"It is clear that this will be a trigger that, sooner rather than later, will increase the demand for foreign currency," the consultant told CRHoy. The economist clarified that it is not possible to establish the magnitude of net capital outflows from Costa Rica.
Costa Rica's oil bill grew by nearly 50% in the first nine months of the year following the rise in international prices. (REUTERS/Willy Kurniawan/Archivo)
The evolution of exports of goods and services constitutes another of the elements considered. Zúñiga linked the slowdown to the higher tariffs applied to some Costa Rican products by the Donald Trump administration and to the prolonged appreciation of the colón. Companies operating under the Free Trade Zone Regime are among the activities that could face effects from that scenario.
External sales of goods increased 3.8% in the first eight months of the year, compared with the 15.7% recorded in the same period the previous year. Exports of services fell by more than 3% during the first half of the year. Lower export activity can limit the inflow of foreign currency into the local market.
The analysis also contemplates a possible reduction in foreign direct investment, following announcements of restructurings, partial closures, and layoffs at free trade zone companies. The sale of Florida Ice & Farm's businesses to Heineken was mentioned as an exception among capital inflows. Outside of that transaction, Zúñiga raised the possibility of a decline in foreign direct investment.
The expectations of companies, investors, and other market participants make up another of the factors cited. If a significant portion of the market anticipates a depreciation of the colón, it could increase its dollar purchases and reduce the available supply.
The fiscal outlook for the coming years can also influence expectations and Costa Rica's risk ratings. Zúñiga summarized to CRHoy that the set of local and international variables could lead to "greater demand for foreign currency, as well as a lower supply." The consultant considered the recent behavior of the currency atypical. He also noted that there is no model that allows the evolution of the exchange rate to be predicted with certainty.
Costa Rica's oil bill grew by nearly 50% in the first nine months of the year following the rise in international prices. (Illustrative image Infobae)
The Central Bank used reserves to meet public demand
The weighted average exchange rate rose by more than ₡1 (USD 0.002) per day in eight of the 10 business days prior to October 5. The cumulative change was ₡10.89 (USD 0.02), equivalent to 2.43%, and the rate reached ₡458.67 (USD 1), its highest value in three months.
During that period, operations on the Foreign Currency Market, known as Monex, registered lower volume. No daily session exceeded USD 40 million, one fell below USD 20 million, and the average was USD 31 million.
The Central Bank of Costa Rica sold USD 187.9 million to the Non-Financial Public Sector and bought USD 128.3 million on Monex. The difference led the entity to use USD 59.6 million of its international monetary reserves.
Banking operations with the private sector maintained a surplus balance, although they were not enough to cover the requirements of the public sector. Among the needs mentioned were those of the Costa Rican Oil Refinery.