Costa Rica Central Bank Tightens Monetary Policy To Stave Off Inflation

by Mike Godfrey, Tax-News.com, Washington

03 August 2004

As the country faces increasing inflationary pressures, Costa Rica’s Central Bank President has announced a tightening of monetary policy in an attempt to ensure future economic stability.

“If we have to choose between stability and growth, we choose stability,” stated Central Bank President Francisco de Paula Gutiérrez on Monday, according to the Tico Times. Economic forecasts foresee inflation reaching 11% this year – the highest rate in six years.

“In general, the price of money will go up. These policies will make credit more expensive. It will also make imported goods more expensive. It will make people consume less and save more,” Gutiérrez explained.

Likening the measures to piloting an aircraft through storm clouds, the central banker explained: “We’re telling people to fasten their seatbelts.”

The inflationary pressures on the economy have been blamed to a large extent on the rising price of crude oil, which has once again broken above the $40 per barrel mark.

Central Bank policy makers previously based their plans on the assumption that the price of oil would pivot around the $28 per barrel mark.

However, economic data shows that the prices of both consumer goods and raw materials have also been rising since the end of last year, contributing to the inflationary effect.

Nevertheless, Gutiérrez has indicated that he is prepared to be flexible over future monetary policy if there are any major changes to Costa Rica’s economic circumstances, or if the nation’s long-awaited tax reform plan is approved by the legislature.

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