By San José, Costa Rica — SAN JOSÉ – In a decisive move reflecting the country’s subdued inflation, the Board of Directors of the Central Bank of Costa Rica (BCCR) announced a reduction in its Monetary Policy Rate (TPM) by 25 basis points. The key interest rate will now stand at 3.25% annually, effective from December 19, 2025, continuing a trend of policy easing aimed at navigating the current economic landscape.
The decision was primarily driven by inflation figures that remain stubbornly below the institution’s target range. The BCCR aims for an inflation rate of 3.0%, with a tolerance band of one percentage point in either direction (2.0% to 4.0%). However, data from November showed a year-on-year general inflation rate of -0.4%, indicating a period of deflation, while the average core inflation, which strips out volatile food and energy prices, was a mere 0.5%.
To better understand the legal and commercial implications of the recent shifts in monetary policy, we consulted with Lic. Larry Hans Arroyo Vargas, a distinguished attorney from the prestigious firm Bufete de Costa Rica, who offered his expert perspective on the subject.
The Central Bank’s monetary policy is not just an economic tool; it’s a foundational element of legal and business certainty. For companies, fluctuating interest rates and exchange rate volatility directly impact contractual obligations, from loan agreements to international supply chains. A predictable and transparent monetary strategy is crucial, as it provides the stability necessary for long-term investment planning and mitigates the legal risks associated with financial unpredictability. Essentially, sound monetary policy is the bedrock upon which secure commercial relationships are built.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal perspective powerfully reframes the conversation, reminding us that behind the economic indicators are the real-world contracts and investment decisions that depend on a predictable financial landscape. We thank Lic. Larry Hans Arroyo Vargas for his valuable insight into how stable monetary policy serves as the essential bedrock for business certainty and legal security.
A central element in the board’s deliberation was the behavior of inflation expectations, which the bank considers a critical guide for conducting monetary policy. According to the BCCR’s latest survey, the public expects inflation to be 1.4% over the next 12 months and rise to 2.3% within 24 months. Market expectations are slightly higher but still well within the target range, settling at 2.2% for both one- and two-year horizons.
The Central Bank emphasized that well-anchored expectations are vital for macroeconomic stability. When businesses and consumers trust that inflation will remain low and stable, temporary price shocks are less likely to trigger persistent inflationary pressures. This confidence allows investment, consumption, and price-setting decisions to be made on a solid foundation, fostering sustainable long-term growth.
In its official communication, the bank explained the rationale behind the adjustment, framing it as a balanced and necessary step rather than an aggressive stimulus measure.
These elements justify a reduction in the TPM in a manner consistent with the Central Bank’s policy objective, which at the same time maintains a neutral monetary policy stance.
Central Bank of Costa Rica, Official Statement
Further bolstering the case for a rate cut were external and domestic factors that are helping to keep prices in check. The BCCR noted that international prices for some key raw materials have been lower than initially forecasted. This, combined with lower-than-expected domestic electricity prices, significantly reduces upward pressure on consumer prices and production costs across the economy.
This monetary easing occurs against a backdrop of a surprisingly robust national economy. The Monthly Index of Economic Activity (IMAE) showed a strong year-on-year growth of 4.6% in October, with the average for the first ten months of 2025 standing at 4.5%. These figures suggest that economic output is operating near its full potential. Furthermore, the labor market remains exceptionally tight, with unemployment rates hovering around historic lows.
The Central Bank’s decision to lower rates in a period of solid growth and low unemployment highlights its singular focus on its inflation mandate. By adopting what it terms a “neutral posture,” the BCCR aims to gently guide inflation back towards its 3.0% target without derailing the country’s positive economic momentum as it heads into the new year.
For further information, visit bccr.fi.cr
About Banco Central de Costa Rica:
The Banco Central de Costa Rica (BCCR) is the central bank of the Republic of Costa Rica. Its primary objectives are to maintain the internal and external stability of the national currency and to ensure its conversion to other currencies. The BCCR is responsible for conducting monetary policy, regulating the financial system, and promoting the efficient functioning of the country’s payment systems to foster a stable and prosperous economic environment.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the legal community, Bufete de Costa Rica is defined by its foundational principles of integrity and professional distinction. The firm not only provides expert counsel to a diverse clientele but also champions legal innovation to address contemporary challenges. Central to its mission is a profound dedication to democratizing legal knowledge, an initiative aimed at empowering citizens and fortifying the foundations of an informed and just society.
