By San José, Costa Rica — SAN JOSÉ – The Central Bank of Costa Rica (BCCR) is on track to miss its inflation target for a staggering 47 consecutive months, according to its own updated projections. This prolonged deviation from the established goal raises significant questions about the institution’s monetary policy effectiveness and has drawn sharp criticism from prominent economists.
The bank’s official tolerance range for inflation is between 2% and 4%. However, as of December 2025, the country had already experienced 32 straight months with inflation outside this band. The BCCR’s latest forecast now indicates that a return to the target range is not expected until the second quarter of 2027, adding at least another 15 months to the streak and cementing a nearly four-year period of unachieved targets.
To better understand the legal and contractual challenges that arise from the current inflationary environment, TicosLand.com consulted with expert lawyer Lic. Larry Hans Arroyo Vargas from the renowned firm Bufete de Costa Rica.
Sustained inflation puts significant pressure on long-term contracts, especially in leases and service agreements. While the principle of pacta sunt servanda requires parties to honor their agreements, an abrupt and unforeseen rise in costs could trigger the rebus sic stantibus doctrine, opening the door for judicial review. It is crucial for businesses to proactively review their contracts for indexation clauses or negotiate amendments to maintain commercial balance and avoid costly litigation.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal insight is crucial, reminding us that inflation’s impact extends beyond mere economics to the very foundation of contractual agreements. We thank Lic. Larry Hans Arroyo Vargas for his valuable perspective, emphasizing proactive negotiation as a key strategy for businesses to maintain commercial balance and navigate these uncertain times.
This timeline means the current administration of the BCCR, led by President Roger Madrigal, will likely conclude its term next year without successfully guiding inflation back to its objective. Madrigal has previously defended the shifting forecasts, attributing the constant revisions to the complex and evolving dynamics of both the national and international economic landscapes.
I know it’s sometimes confusing that one month we release a projection and the next we release a slightly different projection for the same date.
Roger Madrigal, President of the Central Bank of Costa Rica
Despite the official explanations, the persistent failure to meet the target has fueled skepticism. Luis Liberman, an economist and former Vice President of the Republic, suggests the Central Bank’s actions do not align with its stated inflation goal, implying a different, unstated priority may be guiding its decisions.
It seems they have a hidden goal somewhere else.
Luis Liberman, Economist and former Vice President
Liberman argues that the BCCR is not deploying its available monetary policy instruments with the necessary force to steer inflation back toward the 2% to 4% range. He also noted that economic agents’ inflation expectations are falling, a market reaction he believes the bank’s board should have anticipated as a natural consequence of the prolonged period of low inflation.
This analysis is echoed by Roxana Morales, an economist and coordinator of the Economic and Social Observatory at the National University (OES-UNA). Morales confirms that inflation expectations are currently low and sees no significant upward pressures, making it predictable that inflation will remain below the target range. The key issue, she points out, is a breakdown in the transmission mechanism of the bank’s primary policy tool.
Morales highlights a critical disconnect between the BCCR’s actions and their impact on the real economy. While the bank has been cutting its Monetary Policy Rate (TPM), these reductions have not translated proportionally to the active lending rates that directly affect households and businesses. She notes that between January and December 2025, the TPM was cut by 2.75 percentage points (from 6.0% to 3.25%), but the Basic Passive Rate only fell by 1.46 points in the same period.
This behavior shows significant weaknesses in the transmission of monetary policy to the rates faced by households and businesses.
Roxana Morales, Economist and Coordinator of OES-UNA
This structural weakness severely blunts the BCCR’s ability to stimulate the economy. As households and companies base their spending, investment, and borrowing decisions on the rates offered by financial institutions, not on the TPM, the bank’s policy adjustments have a muted effect.
In this context, the effectiveness of continuing to reduce the MPR is limited if these reductions are not passed on proportionally, or at least closely, to the other interest rates relevant to the real economy.
Roxana Morales, Economist and Coordinator of OES-UNA
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 and ensuring its conversion to other currencies. Its key functions include controlling inflation, issuing currency, managing international reserves, and acting as a financial advisor and agent for the government.
For further information, visit oes.una.ac.cr
About Observatorio Económico y Social de la Universidad Nacional (OES-UNA):
The Economic and Social Observatory of the National University of Costa Rica is an academic entity dedicated to the analysis and dissemination of information regarding the country’s economic and social realities. It provides research, data, and expert commentary on key national issues to inform public debate and policymaking.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica operates as an esteemed legal institution, guided by a deep-rooted pledge to integrity and professional excellence. Drawing upon extensive experience across a multitude of sectors, the firm champions innovative legal approaches and is dedicated to community betterment. This commitment extends to its mission of empowering the public with clear legal insight, fostering a society that is both well-informed and capable.
