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Ticos Fear Instability Of Rising Dollar Exchange Rate
Inside Costa Rica

The instability of the U.S. dollar and the rapid increase in the exchange rate with the Costa Rican Colon this past week is leaving many, especially, Costa Ricans worried.

When the exchange rate dropped 4% overnight last November, the price of most goods and services increased to compensate for the loss. However, now that the exchange rate is almost at the same level before the drop, the prices have not dropped. The manager of the Banco Central de Costa Rica (BCCR) - Central Bank, Roy González, is urging the population not to take quick action and that increase is normal. However, many don't share the opinion of González and have been reacting.

The drop in the exchange rate, for many Costa Ricans, was seen as a salary hike, as their paycheck would not stretch a little further. However, with the rise, the reserve is occurring and many feel that they are being hard hit since the price of consumer goods and services is unlikely to drop to reflect the change. The question being asked by many, is why did the dollar increase?

According to the experts, the increase was due to a higher demand for the dollar to pay for imports. The explanation is that during the first quarter of the year, import of goods rose 20% over the same period last year and 10% over 2006. In addition, the Central Bank intervened in the market to purchase dollars. The purchase, according to the Central bank, was to supply public institutions with the currency, and although it is not known how much of the U.S. currency was purchased, the price it paid is known.

Another reason given for the rise in the exchange rate is the decelerating amount of dollar income from exports. In the first quarter of 2008 exports grew only 8% over the same period in 207, compared to the 13% growth in 2007 over the same period in 2006. Notwithstanding, the amount of dollars in reserve has grown, indicating other sources of the currency coming into the country that could be coming in from investments or capital, which amounts are not exactly known.

Yet another reason is the expectations of the increase in value of the U.S. dollar which generated a higher demand and causing the higher value. The increase began with the first move by the Banco Nacional (BN) when last Wednesday pushed up the exchange rate by ¢5 colones overnight, compared to the policies of the Central Bank where it has moved its reference rate only fractions of a colon each day.

The other state bank, Banco de Costa Rica (BCR), followed suit, which was followed by the private banks and forcing the Central Bank to up its reference rate as well. The U.S. dollar to the Costa Rican Colon exchange rate today is at: buy ¢512 and sell ¢518 at the Banco Nacional and ¢513 and ¢519 at the Banco de costa Rica. Scotiabank is buying dollars today at ¢511 and selling at ¢521, while at the BAC San José the sell buy and sell rate is ¢511.5 and ¢521.05, while the Central Bank's reference rate is set at: buy ¢511.41 and sell ¢518.71.

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