What Could Happen In Costa Rica With Rates In Colones And Dollars If The Fed Initiates Rate Cuts?

(MENAFN- Costa Rica News) Last Friday, Jerome Powell, chairman of the United States Federal Reserve (Fed), gave clear signals that rate cuts are coming in the coming weeks and the next meeting is in mid-September.

So, if you ask your trusted investment advisor, the markets are already pricing in an initial adjustment, but how will this affect local rates, the exchange rate, inflation, and economic growth for Costa Rica?

Interest Rates and Credit

Rates in dollars will automatically drop, as they mimic what happens with the Fed rate. For reference rates, they could even begin to be discounted before the specific announcement.

Thus, credit in dollars will continue to be even more attractive, since, with the exchange rate practically stuck at 500 colones, the exchange rate risk has“disappeared,” or at least that's what consumers feel.

In colones, the Passive Base Rate (TBP) and lending rates have shown downward rigidity compared to previous cuts in the Monetary Policy Rate (TPM). With almost zero inflation and ample liquidity in the market, it could be a good time for the system to make colone loans attractive, but for the moment this is not happening, as foreign currency loans continue to gain ground.

Exchange Rate

Looking back in time, the Fed's cuts tend to weaken the dollar globally. In Costa Rica, with the managed float regime and the current outlook, this would provide one more reason not to expect upward pressure on the exchange rate.

It could even facilitate the appreciation of the colón if foreign currency inflows from tourism, Foreign Direct Investment (FDI), and exports typical of the end of the year continue. Thus, the dollar will remain similar to its trend throughout 2025.

Inflation

Inflation in the country is practically zero year-on-year, according to data from the second quarter of the year, and remains well below the target range of the Central Bank of Costa Rica (BCCR).

This leaves room for maneuver for monetary policy, although the BCCR remains cautious: its July Monetary Policy Report projects that inflation would gradually return to the target range in 2026.

Who would be the main beneficiaries?

Dollar-denominated debtors (with or without foreign exchange exposure): realign loans at lower rates; debt service improves; and a stable exchange rate.

Companies with capital-intensive investment plans, due to lower financing costs in dollars.

Government and local issuers: Refinancing in international and local markets at better rates if spreads remain stable; relief in interest costs.

Credit-sensitive sectors (mortgages, construction, consumer durables): Demand long-term financing; any sustained drop in rates improves sales and linkages.

And who could be exposed?

Pure exporters and local linkages: An appreciated colon compresses margins if there are no hedging measures or productivity improvements.

Colon debtors: If the rigidity of lending rates persists, the relief may take longer to be felt in installments.

Keys to follow

Fed's magnitude and guidance for upcoming September and October meetings

Local inflation and expectations (if they remain within range)

TBP and bank margins, to see a real transfer to colon-denominated loans

Foreign exchange flows (tourism, FDI, exports) and BCCR interventions to limit volatility could tell us something about the exchange rate

Costa Rican sovereign spreads, to see investment options and compare with other markets.-

>At Resonance, we aspire to live in harmony with the natural world as a reflection of our gratitude for life. Visit and subscribe at Resonance Costa Rica Youtube Channel @resonanceCR

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