Take advantage of the cheap dollar! Stability could last until the middle of next year

QCOSTARICA — If you plan to travel, or make a significant investment, it is best to use your aguinaldo (year end bonus) or additional income to buy dollars, given the benefit of saving in dollars would continue until the middle of the first half of 2025.

Economists interviewed by LA REPÚBLICA estimate that the dollar exchange will remain in an average range between ¢510 and ¢525 per dollar.

Currently, there are factors that are driving the drop in the exchange rate: The payment of the aguinaldo, the start of the high tourist season, and the payment of certain taxes by companies, among others.

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However, these conditions are temporary, and abrupt changes in the projections are not expected.

A low dollar has several implications for the economy.

For example, it reduces the prices of imported products, such as food, vehicles, machinery and technology; In addition, it reduces the cost of fuel and allows the Central Bank to have greater control over inflation.

The main reason behind this drop in the dollar is the strong surplus of foreign currency in the market, the result of greater flows of foreign direct investment, movements of private financial capital, international trade, management of monetary reserves, and speculative calculations in a highly dollarized country, according to economist Alberto Trejos, economist.

Trejos added that this dynamic has led to an appreciation of the exchange rate of 14.2% since January 2023.

However, he warned that this appreciation affects Costa Rica’s competitiveness compared to countries such as Brazil and Colombia.

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Gerardo Corrales, economist at Economía Hoy, blamed the Central Bank and said that its actions make goods and services more expensive in real terms, while promoting a lower dollar exchange rate and thus affecting employment and the survival of companies.

The tourism sector, for example, faces a crucial challenge due to the unfavorable exchange rate of the dollar, according to Shirley Calvo, executive director of the National Chamber of Tourism (Canatur).

“This period of season implies additional costs for companies, such as hiring more staff, paying social security contributions, greater purchases from suppliers to supply supplies and services, as well as the increase in fuel, electricity and water costs and, meanwhile, companies receive their income in dollars, which is very close to the ¢500 barrier, affecting the finances of small and medium sized businesses and other actors close to the tourism sector,” said Calvo.

On this subject, the businesswoman has said on multiple occasions that the sector has asked the Central Bank to address its observations, but it has not wanted to reduce the Monetary Policy Rate (TPM) with the speed that the country requires to stop the fall of the dollar against the colon.

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On the other hand, this situation benefits people and companies with debts in dollars, since their payments are reduced.

Loans in dollars grew 10.6% in the last year, compared to 7.5% in colones, according to data from the Central Bank.

Exchange rate for sale of the United States dollar. Reference from the Banco Central de Costa Rica

Likewise, the Central Bank and the country have benefited from a record growth in monetary reserves. In 20 months, the country’s International Reserves went from US$7.9 billion to US$13.9 billion.

This is a growth of 76%, which is “an outrage,” according to Daniel Suchar, an economic analyst.

“Why are there so many dollars in the market? Why are there so many dollars in our savings account? We have to look at the monetary policy rate, which is at 4% and is very attractive to continue investing in colones and not in dollars. That is why people bring dollars and exchange them, and this causes the exchange rate to be low, or in other words, that is why we have a super colon,” said Suchar.

How to take advantage of a cheap dollar? The drop in the dollar exchange rate at the end of the year can be taken advantage of by companies and workers.

Here are some recommendations:

Plan your investments: Buy dollars while the exchange rate remains cheap, with the expectation of making money when the price goes up
Avoid unnecessary debts in dollars if you receive income in colones, since it is also true that the dollar will appreciate again at some point
Diversify your savings to mitigate exchange rate risks
Follow the behavior of the market and the decisions of the Central Bank
Start an emergency fund to face unforeseen changes
If you have accounts in dollars and income in colones, it is a good time to advance repayments and take advantage of a cheap exchange rate
With a cheap exchange rate, it is a good time to travel, since not only will the tickets be cheaper when converting to colones, but also the services you pay abroad.
People with a business, large or small, can take advantage of the exchange rate to buy machinery or supplies at an advantageous price, thus saving money
If you already had a certain budget to pay a debt in dollars and you have money left at this time, start saving
Invest in imported goods at more favorable costs if you wish

Maintaining loose monetary reserves allows the Central Bank to deal with dollar withdrawals by the financial sector, which guarantees that there is money circulating in the economy.

Having an adequate level of monetary reserves is also important to face the impact of external factors that could affect the country, such as pressures from a possible global recession.

In other words, it is like having money saved to face an adverse international situation that affects the country’s economy, such as a war, a global recession or a pandemic, among other possibilities.