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December 21st, 2012 (InsideCostaRica.com) According to the Costa Rican Central Bank (BCCR), foreign investors this year have increasingly pumped funds into the country, generating a large increase in dollars in the National Reserve, which in turn will cause a huge increase in inflation and the cost of living in 2013.
Rodrigo Bolanos, President of the Central Bank, said that foreign investors are attracted to Costa Rica because of the high interest rates they can earn in colons, stability in the exchange rates and low inflation; however, their excessive investment threatens to increase the prices of goods and services this coming year.
Bolanos said that the country “has never had such high reserves in millions of dollars.”
The Central Bank says it has already practically exhausted its planned purchase of dollars for both 2012 and 2013.
The Bank says that while income from investments lowers the pressure on interest rates, it believes the high level of foreign currency investment is now harmful, because it will result in a large increase in inflation and “may destabilize the financial system.”
Bolanos explained that the Central Bank purchases the dollars and issues colones, but those colones “cannot remain in circulation because in the coming months, it will begin to affect us in the monetary growth of credit, which would put more pressure on prices. We do not want that to happen, as we want [inflation] to continue at the current 4.5%.”
The President of the Bank said that he is seeking a solution to the problem, and will announce measures to address the issue after he returns from the end-of-the-year break.