Tariffs and a drop in tourism could push the dollar exchange higher

Q COSTARICA — Expectations for the dollar exchange for the second half of the year point to an increase, as two factors are pushing it upward: the implementation of tariffs by the United States and fewer tourist arrivals, said Federico Quesada, director of the School of Administrative Sciences at the State Distance Education University (UNED).

What would be the direct impact on the dollar?

Costa Rica faces strong pressures. On the one hand, its main trading partner has raised tariff barriers, which will push up the prices of Costa Rican goods and services sold in that market. On the other hand, because fewer products are being exported, the dollar exchange rate is likely to rise as well.

Similarly, as companies leave or restructure their roles in the microprocessor market, demand for foreign currency could rise, pushing the exchange rate higher. Added to this, is a projected drop in international visitors over the next few months.

What would be the impact on the exchange rate if the government issues the Eurobonds?

A decline in the exchange rate is not foreseeable; however, with the inflow of dollar financing into the international market, greater stability in this macroprice could be achieved in the short term.

If intervention by Costa Rica’s Central Bank (BCCR) were necessary, it would only occur if the psychological limits of the exchange market were breached (for example, if the exchange rate falls below ¢500 for purchases); however, due to the complex context facing the country, this situation is considered unlikely.

Should the BCCR be forced to intervene, it has room for maneuver thanks to the international reserve balances at its disposal.

An increase in liquidity would be possible if the placement of the aforementioned instruments takes place during the November-December period of this year.

A longer period of time will be necessary to determine the new international conditions, the new macroeconomic equilibrium, and foreign direct investment (fDI) flows, in order to establish how the exchange rate will behave.