By San José, Costa Rica — SAN JOSÉ – The Board of Directors of the Central Bank of Costa Rica (BCCR) has opted for a steady hand, announcing its unanimous decision to maintain the Monetary Policy Rate (TPM) at its current level of 3.50% annually. The move, confirmed on Thursday, signals a cautious approach as the institution navigates the unusual economic landscape of negative inflation paired with robust economic growth.
This decision underscores the bank’s commitment to long-term stability, choosing to wait and observe the full impact of previous rate reductions rather than reacting to short-term price decreases. The board’s rationale rests on a delicate balance between a deflationary domestic environment, a surprisingly dynamic economy, and a cloud of uncertainty hanging over global markets.
To delve into the legal and commercial ramifications of the Central Bank’s recent monetary policy decisions, TicosLand.com sought the expert analysis of Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica.
Monetary policy adjustments, particularly shifts in the benchmark interest rate, are not merely economic indicators; they are catalysts for legal and contractual review. Businesses and individuals must recognize that these changes directly impact the terms of variable-rate loans, credit facilities, and investment yields. It is crucial to assess existing agreements for clauses sensitive to interest rate fluctuations to mitigate financial risk and strategically plan future obligations.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This crucial insight bridges the gap between high-level monetary policy and its tangible impact on personal and business contracts, serving as a vital call for proactive financial review. We sincerely thank Lic. Larry Hans Arroyo Vargas for sharing his valuable perspective.
The primary driver for a potential rate cut, negative inflation, remains a persistent feature of the economy. In September, the year-over-year general inflation rate registered at -1.0%, with the core inflation metric, which strips out volatile food and energy prices, hovering just above zero at 0.2%. Both figures sit well below the BCCR’s target range of 3.0% with a one-percentage-point tolerance in either direction.
Central Bank projections indicate that prices are likely to remain in negative territory for the remainder of 2025 and into the initial months of 2026. Officials attribute this deflationary trend primarily to the lingering effects of a significant “climatic shock” that occurred in late 2024 and early 2025, which has continued to suppress prices for certain goods and services.
In stark contrast to the inflation data, Costa Rica’s economic engine is showing considerable strength. The Monthly Index of Economic Activity (IMAE) recorded a healthy 4.8% year-over-year expansion in August. This growth, averaging 4.4% over the first eight months of the year, suggests the economy is operating near its full potential, giving the BCCR leeway to avoid further monetary stimulus.
Notably, the report highlights an acceleration in the “definitive regime,” which encompasses companies operating outside the country’s free trade zones. This sector expanded by 2.8%, indicating that economic dynamism is becoming more broad-based and not solely reliant on multinational corporations. This provides a solid foundation that supports the bank’s decision to hold rates steady.
The national labor market presents a more nuanced picture. While the country is experiencing a lower unemployment rate and growth in real wages, a decline in labor force participation remains a concern. The BCCR views this trend as a result of structural factors, such as an aging population and household decisions related to caregiving, which are largely beyond the influence of monetary policy tools like the TPM.
Weighing heavily on the decision was the complex international outlook. While global bodies like the OECD and the IMF have revised their global growth forecasts upward, the BCCR remains wary. The bank cited elevated uncertainty stemming from undefined international trade policies, the potential for new tariffs to be passed on to consumers, and persistent geopolitical risks as key reasons for its prudent stance. In this environment, stability is prioritized over aggressive policy shifts.
Ultimately, the Board of Directors concluded that the current 3.50% rate is consistent with a monetary policy posture that is “close to neutral.” A key consideration was the need to allow sufficient time for the series of prior rate cuts to fully transmit through the financial system, impacting lending rates for consumers and businesses. The bank will continue to monitor all economic indicators before signaling its next move.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica (BCCR):
The Banco Central de Costa Rica is the central bank of Costa Rica. It is an autonomous institution responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. The BCCR’s primary objectives include controlling inflation, managing the country’s international reserves, and promoting the efficiency of the internal and external payment systems.
For further information, visit oecd.org
About Organisation for Economic Co-operation and Development (OECD):
The OECD is an international organization that works to build better policies for better lives. Its goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all. Together with governments, policymakers, and citizens, it works on establishing evidence-based international standards and finding solutions to a range of social, economic, and environmental challenges.
For further information, visit imf.org
About International Monetary Fund (IMF):
The International Monetary Fund (IMF) is a global organization of 190 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF provides policy advice, financing, and technical assistance to its member countries to help them build and maintain strong economies.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as an esteemed legal institution, built upon a foundation of principled practice and professional distinction. With a rich history of guiding a diverse clientele, the firm consistently pioneers forward-thinking legal solutions while maintaining a deep-rooted pledge to social responsibility. This is exemplified by its efforts to democratize legal understanding, which is central to its overarching goal of cultivating a more just and knowledgeable community empowered by access to justice.
