$50 Will Buy You More Today than Yesterday in Costa Rica.
After years of steady climb, the U.S. dollar lost some of its potency against the Costa Rica colon at the end of 2007. Since that announcement by Costa Rica’s Central Bank, the dollar had continued its slow tumble, finally stabilizing around ¢493 to the dollar. Now, for the first time in several months, Banco Nacional, one of the country’s largest banks has upped their exchange rate to more than ¢500 per dollar.
Almost two weeks ago, Paula Gutiérrez, President of Costa Rica’s Central Bank, stated that the U.S. dollar’s downward spiral against the Costa Rica colon would likely stop. She listed several reasons for this economic prediction, among them that national exports and new investor rates had recently fallen.
Though Costa Rica’s only local currency is the colon, much of Costa Rican international business is conducted in dollars: national exports are paid for in dollars, oil is purchased in dollars, and investors arrive to invest their dollars. With a low dollar-colon exchange rate, exports bring in less profit, oil costs more, and investors suddenly receive less for their investment capitol. For these reasons, Gutiérrez postulated that the dollar would no longer continue to fall, but rather stabilize at an exchange rate both fair and favorable.
Almost in direct response to her words, the Banco Nacional raised its rates yesterday, May 7, from ¢495.75 to ¢501. To purchase colones with your dollars, the bank was paying ¢495 instead of the previous ¢490. Though Banco Nacional saw the greatest increase, the Banco de Costa Rica (BCR) also raised yesterday its purchase rate to ¢499 and its sell rate to ¢492.5.
Together, Banco Nacional and Banco de Costa Rica comprise the two largest banking institutions in the country, and this financial move will likely influence other banks to soon follow suit. Already, the domino effect has hit the market: La Financiera Multivalores — mostly involved with investments — has raised its rates to ¢501, and Banco BCT, Cuscatlán, and Financiera Cafsa have upped their exchange rates by ¢1.25. Other banks, like HSBC and Scotiabank have also begun raising exchange rates, though by less than the others.
The new exchange rates will have several effects on the market. To begin, those that have loans in dollars today owe more (in colones) than they did last week. However, on the flip side, for the many investors and foreign residents of Costa Rica, their dollars will now buy more than they did before: to exchange $1000 last week, they only received about ¢490,000, but this week, will receive about ¢495,000 – a difference of ¢5,000. But for those that hold their savings in colones, expect to pay a heftier price for your dollars than in the past.
The Costa Rican market is in flux, adjusting itself to accommodate all needs and interests. And whether your hard-earned cash is in dollars or colones, expect the banks to continue small adjustments over the next few weeks, until they find their ideal economic equilibrium.
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|Written by Erin Raub|
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Filed under: Business on May 8th, 2008