QCOSTARICA — The fall in the dollar exchange rate is reaching historic levels and, therefore, the placement of loans in the foreign currency has skyrocketed in Costa Rica.
In the last 12 months, loans in U.S. dollars went from representing 2.2% of the total credit portfolio to 10%.
– Advertisement –
However, specialists recommend caution.
The present currency exchange rate may be alluring, and similar to Ulysses’ experience in the Odyssey, borrowers should secure themselves to the mast to resist the lure of temptation and avoid being trapped in a vast amount of debt.
In general terms, if you earn all or mostly in colones it is better that you think twice before taking out a loan in dollars.
In the medium term, the dollar exchange rate will rise again and if you do not have enough liquidity to meet your debt, you could find yourself in trouble.
For this Tuesday, in the morning, the official reference rate set by the Banco Central de Costa Rica (BCCR) – Central Bank – buy for dollars is ¢510.56 and the sell ¢517.68. The former a few colones lower than the close last week, the latter a colon higher.
At the major banks, both private and public, the range for the buy is between ¢504 and ¢509, while the sell is between ¢518 and ¢523.
– Advertisement –
“At this time, when the exchange rate is low, the person who is thinking about going into debt in dollars and has their income in colones, must keep in mind that the exchange rate is fluctuating and that in the future it will most likely rise, so one must consider the exchange rate risk and to face this risk, one must have a reserve or a margin of slack in their income that allows to meet credit installment even when the exchange rate is higher,” said Annabelle Ortega, executive director of the Cámara de Bancos y Entidades Financieras (Chamber of Banks and Financial Entities).
The reality is that many consumers are disregarding this recommendation and are taking out loans in dollars, so the placement percentage exceeds the growth of the total credit portfolio (in dollars and colones), which in the last year was 6%
Ortega and other experts agree that the exchange rate is expected to remain on a downward trend during the first semester mainly due to the high tourism and the tax payment season.
Additionally, there are many dollars in the economy due to increased foreign investment. Earlier this month the Central Bank reported having almost US$14 billion dollars in reserve.
– Advertisement –
Another recommendation is to consider choosing a loan that includes exchange coverage, which ensures that the borrower will have a set price throughout the payment period.
Silvia Jimenez, Investment manager at Mercado de Valores (Stock Market), recommends companies and individuals define in their financial planning whether they are willing to take the exchange risk if they go into debt in a currency different from the one in which they maintain their income.
If taking the exchange risk, Jimene recommends establishing stress scenarios. “Know the conditions of credits for extraordinary payments and currency exchange possibilities in case the exchange rate becomes a problem due to an increase in fees,” said the investment manager.
Here are five legit reasons why the dollar is taking a nosedive in Costa Rica:
- There is a very high savings interest rate
- Abundance of dollars in the Exchange Market and High International Reserves
- Many deposits in colones in the process of maturation
- High International Interest Rates
- The arrival of tourists, exports and investments maintain a constant flow
– Advertisement –
Source link
Rico
