Central Bank cuts rates

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By LatAm Reports Editor

The central bank made the decision to reduce its monetary policy rate by 50 basis points, leaving it now at 4.75, supported by low inflation expectations for the second half of the year.

TPM is the rate used by the Central Bank as a control mechanism to push for a rise or a drop in the fees that commercial banks charge their customers.

In general, an increase or decline in the MPC also implies an increase or decrease in the Basic Passive Rate (TBP) which is the reference banks use as an average to calculate the interest they charge their customers for credit.

The complaint so far has been that this MPC has been used by the Emissor entity as a mechanism to pressure low inflation. Economic theory says that if you press for high rates, you will also discourage loans and thus keep people’s ability to spend at bay; that is, low inflation.

Róger Madrigal, president of the Central Bank, confirmed that the Emissor Authority is rather taking as a reference that inflation remains in negative terms to reduce the MPC, although by the second half of the year it is expected to close in positive terms.

The projection is that inflation is always maintained within the target range (-3%).

What we are seeing in the very short term is that there was less growth and it is projected that growth is not accelerated, it is around 3.2% for the world and for trading partners at 2.3%, so demand pressures, which increase inflation from an external point of view, will not change. There are geopolitical, fragmentation, climate risks … then in the short term there are elements of demand and a persistence of risks that tend to balance (inflation), Madrigal said.

The hierarch added that short-term interest rates, in the case of the United States Federal Reserve (FED), will, if anything, two reductions.

Countries such as Costa Rica tend to react quickly to an increase or fall in EDF rates.

This article has been translated from the original which first appeared in CRHOY