Costa Rican dollar exchange rate forecast for 2024

Dollars./ RR SS
Dollars./ RR SS
The Costa Rican economic landscape in 2023 was marked by extensive discussions surrounding the exchange rate between the dollar and the colon.
Costa Rican dollar exchange rate forecast for 2024

Economists interviewed by La Nación anticipate a stable period for the dollar exchange rate in 2024, attributing this projection to the ongoing steady flow of dollars into Costa Rica. This consistent inflow has been a driving force behind the depreciation of the dollar against the colón over the past 12 months.

Under the central scenario of a robust influx of dollars, attention is directed towards key sectors highly influenced by the dollar, such as tourism, construction, and exports, both within and outside of free trade zones. Adriana Rodríguez, the general manager of Acobo Puesto de Bolsa, emphasized the importance of monitoring developments in these sectors as they are expected to contribute to the supply of dollars in 2024, similar to the trends observed last year.

Rodríguez also highlighted the significance of tracking the quarterly balance of payments, as changes in surpluses in accounts like goods and services could provide early indications of shifts in the exchange rate trend. The balance of payments is a comprehensive accounting record reflecting all economic and financial transactions between a country and the rest of the world during a specific period.

Luis Vargas, an economist at the College of Economic Sciences, identified commodity prices, particularly the oil bill, and the performance of service exports as key determinants of the dollar's behavior in 2024. These factors could exert upward or downward pressure on the exchange rate. Vargas also added that adjustments in both international and national interest rates should be considered.

Pablo González, an economic analyst at Mercado de Valores, underscored the role of market forces in determining the exchange rate in a managed floating exchange rate system like Costa Rica's. He emphasized that the economic dynamics supported by special regime companies, such as free trade zones, and tourism, will continue to generate a significant flow of dollars in the national economy, impacting the supply of dollars.

González pointed out that the attraction to invest in colones might not be as strong, potentially countering downward pressures, although not enough to change the trajectory of the exchange rate.

The Mercado de Valores analyst highlighted the seasonality of the foreign exchange market, which, though less pronounced due to the excess of dollars over the past year and a half, remains a crucial factor, as evidenced by the exchange rate's drop of nearly ¢10 in December 2023.

Juan Pablo Arias, an economic analyst at the Bolsa Nacional de Valores (BNV), distinguished between long-term and short-term variables affecting the exchange rate's behavior. Arias emphasized the difference between local and foreign interest rates, comparative economic growth between Costa Rica and the United States, and local productivity versus foreign productivity as long-term factors.

Arias highlighted the productivity factor as a significant contributor to the substantial inflow of dollars into the country, leading to the colón's appreciation against the dollar. He foresees these elements continuing in the long term.

On the other hand, Arias noted that market expectations are a more volatile component, prone to change based on economic variations or specific news. This variable, more ephemeral in nature, often results in short-term changes due to emotional rather than rational expectations.

Regarding projections for 2024, Arias suggests that the exchange rate will maintain its downward trend, with a potential stabilization in the medium or long term, provided there are no significant changes in conditions. However, he emphasizes that a more relaxed monetary policy by the Central Bank of Costa Rica (BCCR), reductions in colón reserves, or increased availability of financial resources could potentially reverse this trend. @mundiario