Costa Rican Rate Hike Underlines Economic Challenges

Costa Rican Rate Hike Underlines Economic Challenges

• Fitch expects the Banco Central de Costa Rica (BCCR) to continue to hike its benchmark interest rate in the coming quarters in a response to inflationary pressures and currency weakness. 
• The likely passage of fiscal reform and the end of the on-going labor strike will boost investor sentiment, reducing depreciatory pressures on the Costa Rican colón. 
• Fitch revised down their end-2018 and end-2019 inflation forecasts to 2.7% and 3.5% y-o-y, respectively, reflecting the monetary rate-hiking cycle that is beginning sooner than expected. 

Source: Fitch