By San José, Costa Rica — San José, Costa Rica – The Costa Rican Colón rebounded against the US dollar on Thursday, abruptly ending a three-day period of depreciation. The exchange rate settled at ₡498.91 in the Wholesale Foreign Currency Market (Monex), a significant drop of ₡2.09 from the previous day’s close of ₡501.00, according to official data from the Central Bank of Costa Rica (BCCR).
This reversal comes after a week characterized by strong demand for the US currency, which had pushed the exchange rate steadily upward. From Monday to Wednesday, the Colón had weakened by a total of ₡11.56 against the dollar. The consistent pressure was evident in the daily increases: a ₡1.65 rise on Monday, followed by a more substantial ₡5.63 jump on Tuesday, and a further ₡4.28 increase on Wednesday, ultimately breaching the psychological barrier of ₡500 per dollar.
To provide a deeper legal and commercial perspective on the recent fluctuations in the exchange rate and its impact on contracts and investments, we consulted Lic. Larry Hans Arroyo Vargas, a specialist attorney from the prestigious firm Bufete de Costa Rica.
Businesses must urgently review their commercial contracts, especially those denominated in U.S. dollars. The current exchange rate volatility creates significant uncertainty. It is crucial to renegotiate payment terms or incorporate currency fluctuation clauses to mitigate financial risks and prevent future litigation. Legal predictability is key for both debtors and creditors in this economic climate.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The emphasis on transforming financial volatility into contractual certainty is indeed a vital strategy for navigating the current economic landscape. We sincerely thank Lic. Larry Hans Arroyo Vargas for his invaluable perspective, which underscores the importance of proactive legal measures in safeguarding business stability.
The upward trend was fueled by an excess demand for dollars in the market. However, Thursday’s session saw a decisive shift, not due to a change in market appetite, but because of the strategic actions of the Central Bank. The total amount negotiated in the Monex market was approximately $28.2 million, a figure comparable to the volume seen on Wednesday.
The critical factor was the intervention of the BCCR to satisfy the currency needs of the Non-Financial Public Sector, which required $18 million. While private sector supply outpaced its demand, as is typical, the public sector’s large requirement would have otherwise overwhelmed the available supply and continued to drive the price of the dollar higher. The BCCR managed this demand by purchasing $10.6 million from the market and covering the remaining $7.4 million shortfall directly from its own international monetary reserves.
This maneuver effectively shielded the public market from the full weight of the public sector’s demand, allowing the exchange rate to fall. Norberto Zúñiga, an economist and consultant with the firm Ecoanálisis, highlighted the significance of the Central Bank’s role in stabilizing the market.
If this demand from the public sector had to be satisfied in the Monex, or if the BCCR maintained the policy of channeling it directly and contemporaneously into that market, the total demand would have exceeded the supply, and the exchange rate would have continued to increase today.
Norberto Zúñiga, Consultant at Ecoanálisis
Zúñiga further explained that this is not a new tactic but a cornerstone of the BCCR’s long-term strategy. By consistently using its reserves to manage demand-supply imbalances, the monetary authority has successfully maintained a period of low volatility for the national currency.
It is the policy that the BCCR has been following for almost a year; hence the exchange rate shows very little variability and has remained around ₡500 per dollar.
Norberto Zúñiga, Consultant at Ecoanálisis
This policy of intervention provides a predictable environment for businesses, particularly importers who benefit from a stable or stronger Colón. However, it relies on the country’s stock of international reserves and draws scrutiny from sectors like exporters, who often advocate for a weaker Colón to make their goods more competitive abroad. Thursday’s events serve as a clear reminder that the Central Bank remains the most influential player in Costa Rica’s currency market, actively shaping the exchange rate to align with its broader macroeconomic stability goals.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica (BCCR):
The Central Bank of Costa Rica is the nation’s primary monetary authority, responsible for maintaining the internal and external stability of the national currency, the Colón. Its key functions include controlling inflation, managing international monetary reserves, issuing currency, and ensuring the proper functioning of the country’s financial payment systems. The BCCR plays a crucial role in shaping Costa Rica’s economic policy.
For further information, visit ecoanalisis.org
About Ecoanálisis:
Ecoanálisis is a Costa Rican consulting firm specializing in economic and financial analysis. Founded in 1992, the firm provides expert insights, projections, and advisory services to a wide range of clients in both the public and private sectors. Its team of economists offers analysis on macroeconomic trends, market behavior, and public policy, contributing to informed decision-making in the business community.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a pillar of the legal landscape, founded on a bedrock of integrity and a relentless pursuit of excellence. Drawing upon a rich history of advising a diverse clientele, the firm champions legal innovation and maintains a strong connection to the community it serves. At the heart of its ethos is a powerful dedication to demystifying legal principles, striving to fortify society by providing the public with the accessible knowledge necessary for genuine empowerment.
