February 5th, 2014 (InsideCostaRica.com) Costa Rica’s vice president, Luis Liberman says the government will not sell large amounts of US dollars into the currency market, at least for the next six months, when the current government leaves power.
In the past, the government has sold large sums of dollars into the market in order to meet the government’s own currency exchange needs – namely, it receives foreign loans in dollars and exchanges a significant amount of them to colons. Now, Liberman says the government will not be making any large foreign exchanges for the remainder of his government. With less supply of government-sold dollars in the market, the dollar is likely to continue to gain ground against the colon.
“The Central Bank has been insisting since the last quarter of last year to take steps to get the dollar off the lower band,” Liberman said, referring to the price floor – or minimum exchange rate of the dollar, where it has remained for some time.
At first glance, Liberman’s statement would some to contradict an official statement from the Central Bank last week in which the bank promised further interventions if necessary after the dollar saw a huge one-day rally against the dollar on January 29th.
The Bank sold some $4.9 million into the Monex market during that day’s trading session in order to prevent the colon from losing additional ground against the dollar.
Most analysts however, believe that the Central Bank’s intervention was not necessarily to protect the price of the colon, but to avoid any high level of day-to-day volatility in the exchange rate.
Should the government indeed scale back on its USD sales – which have been of significant downward pressure on the dollar’s value versus the colon – the greenback could see further gains against the colon in the months ahead.