The dollar exchange is still far from reaching an equilibrium point

QCOSTARICA – Even though the dollar rate has stopped its decline over the past month and, more importantly, started to gain value, this does not mean that the exchange rate is close to the level where it should be to allow business in the export sector, tourism and foreign investments to operate smoothly and avoid redundancies.

With a dollar rate of more than ¢620 colones per one US dollar, debtors could maintain their debts without major problems.

But we are not there yet, we have reached an equilibrium point, and there are no expectations that this will happen in the short term, according to financial experts.

– Advertisement –

The problem is that between May 2 and May 31, dollar purchases increased from ¢503 to ¢520, implying a recovery of only ¢17 per unit. ¢100 below that equilibrium point.

The improvement in the dollar rate over the past month is related to the reduction in the Monetary Policy Rate (MPR) approved by the Banco Central (Central Bank); However, experts believe that the state entity still has room to further reduce this index and thus promote borrowing and the increase in the dollar rate.

“The ideal value for the productive sector and accounts receivable should be based on a fluctuating figure between ¢620 and ¢640. Before all these big swings that we have experienced up and down in the last year and a half, there were no big movements in the dollar rate and people accepted them without any problem. That is what we call the equilibrium point (…) I think the Central Bank still has room to lower the MPR even further,” said Daniel Suchar, economic analyst.

The sharp decline in the dollar rate over the past 18 months has made Costa Rica one of the countries with the greatest appreciation of the local currency, the colon, said Gerardo Corrales, economist at Economía Hoy.

Experts agree that it is essential that the exchange rate returns to ‘normal’ values ​​so as not to affect companies that receive their revenues in dollars, and to avoid further layoffs, such as the case of a company that has been operating for the past 35 years was active and had to close due to the low dollar exchange rate.

The Standard Fruit Company, a major player in Costa Rica’s export sector, recently announced the layoff of more than 400 people for the same reason.

– Advertisement –

“You have to look for a neutral exchange rate. When the exchange rate was ¢620, no one talked about the exchange rate. When it started to rise to ¢700, dollar debtors and those earning in colones started to get nervous and sound the alarm. With the exchange rate barely at ¢530, it is the exporters, hoteliers and local producers who are confronted with imports and react,” said Corrales.

Costa Rica is an economy that is very dependent on the external market, so a decline in the value of the US dollar has a major impact.

One of the reasons for the low dollar is the record levels of tourism, exports and foreign investment in 2023, which will flood the market with dollars, while the government does not buy the local market to pay off its debts. there is less demand for the dollar and that translates into a lower dollar exchange rate.

Related

– Advertisement –