Central bank raises exchange rate ceiling for dollars to ¢800

October 8^th, 2013 (InsideCostaRica.com) Costa Rica’s Central Bank has raised the ‘ceiling’ of the dollar exchange rate to ¢800.5, but don’t expect any immediate change in the purchasing power of the greenback.

Costa Rica’s exchange rate “band” system sets both a “floor” or lower band and a “ceiling” or upper band for the exchange rate of its national currency against the dollar.

Those holding or earning dollars, however, shouldn’t get excited.  Experts said the move is simply to reassure certain sectors in the economy, such as exporters, and wouldn’t affect the actual exchange rate.

The dollar has remained near the bottom band of ¢500 all year.

Experts said that the consensus is that the colon should always gradually weaken against stronger currencies such as the dollar.  As a result, experts said, there shouldn’t be the need for an upper band at all.

Exporters and other sectors become more profitable – and their goods more attractive on world markets – when the dollar’s purchasing power relative to the colon increases, effectively making their products cheaper in export markets.

Experts said that the Central Bank’s movement of the upper band is simply to reassure such sectors that there is plenty of room for long-term – and gradual – devaluation of the colon.