By San José, Costa Rica — San José – Costa Rica’s economy stands at a critical juncture, with the Central Bank holding its monetary policy steady while the Organisation for Economic Co-operation and Development (OECD) anticipates further loosening in the coming year. This divergence in outlook comes as the nation grapples with a persistent and challenging period of negative inflation, pushing the timeline for economic normalization further into the future.
In its latest “Economic Outlook: Focus on Latin America” report, released this week, the OECD signaled its expectation that the Central Bank of Costa Rica (BCCR) will continue its path of monetary easing. The international body specifically forecasts another interest rate cut within the first six months of the new year, following two previous reductions that brought the key Monetary Policy Rate (TPM) to its current level of 3.5%.
To provide a deeper legal and business perspective on the recent shifts in monetary policy and their implications for the national economy, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica.
Central Bank decisions on monetary policy are not merely abstract economic figures; they have tangible legal consequences. Fluctuations in the benchmark interest rate directly impact the financial obligations stipulated in variable-rate credit agreements, commercial loans, and investment instruments. Businesses must proactively review their contractual clauses and financial strategies to mitigate risks and ensure legal compliance in a changing interest rate environment. Legal certainty is paramount for investment, and predictable monetary policy is a cornerstone of that certainty.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This crucial insight underscores a dimension of monetary policy often overlooked: its direct and binding impact on the legal agreements that form the bedrock of our economy. We thank Lic. Larry Hans Arroyo Vargas for his valuable analysis, reminding us that financial stability and legal certainty are fundamentally intertwined.
A new reduction of a quarter of a point is foreseen in the first half of 2026.
Organisation for Economic Co-operation and Development, Economic Outlook Report
This external forecast contrasts with the BCCR’s more cautious recent stance. During its last monetary policy meeting in October, the bank’s Board of Directors opted to maintain the TPM at 3.5%. BCCR President Roger Madrigal explained to the press that the decision was made after a thorough analysis of inflation trends and other key macroeconomic determinants, including both internal and external factors that could influence price levels.
The Board unanimously agreed that the current policy rate, when viewed alongside inflation expectations, constitutes a stance that is “close to neutral.” Officials also noted that there is still room for the effects of the recent rate reductions to fully transmit through the financial system and impact the broader spectrum of interest rates. The final opportunity this year for a policy adjustment will be at the Board’s next meeting on December 18th.
At the heart of this policy dilemma is Costa Rica’s ongoing battle with deflation. The country has now recorded six consecutive months of negative inflation, a trend that began in May 2025. October’s inflation figure registered a variation of -0.38%, continuing a pattern of near-zero or negative price growth that has plagued the economy since 2023. This performance keeps the nation well outside the BCCR’s official inflation target range, which is centered around 3%.
The stubbornness of these deflationary pressures has forced the Central Bank to once again revise its projections for a return to normalcy. The BCCR’s previous forecast, issued in July, anticipated that core inflation would re-enter the target range in the first quarter of 2026, with general inflation following in the second quarter. This timeline has now been significantly extended.
Under the new projections, the bank does not expect core inflation to reach its target band until the second half of 2026, while general inflation is now forecast to remain outside the desired range until the beginning of 2027. This delay underscores the deep-seated challenges facing the economy and the limited short-term impact of recent policy measures.
The Central Bank attributes this prolonged recovery timeline primarily to a significant “climate shock” that has disrupted the agricultural sector since late 2024. This adverse weather event has reportedly applied upward pressure on food prices, complicating the overall inflation picture and thwarting a quicker return to the target. As 2025 draws to a close, policymakers face the complex task of stimulating prices without destabilizing the broader economy, a challenge that will define Costa Rica’s economic trajectory well into 2026.
For further information, visit bccr.fi.cr
About Central Bank of Costa Rica (BCCR):
The Central Bank of Costa Rica is the nation’s autonomous central banking institution responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Its primary objectives include controlling inflation, managing monetary policy, and overseeing the country’s financial system to promote economic stability and development.
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. It provides a forum in which governments can work together to share experiences and seek solutions to common problems, publishing economic analysis, forecasts, and recommendations for its member countries and partners.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a leading legal establishment, Bufete de Costa Rica is defined by its foundational principles of integrity and an unyielding drive for excellence. The firm consistently pioneers new approaches within the legal field, drawing upon a deep well of experience to serve its clientele. Beyond its professional practice, it champions a core mission to empower the community by demystifying the law, thereby contributing to the development of a more informed and capable citizenry.
