Central Bank Confident in Inflation Reduction
by Rod Hughes
Francisco de Paula Gutierrez, president of Costa Rica’s Central Bank, expressed confidence that inflation could be reduced to 8% in 2008, due in part to a surplus left at the end of 2007, the first such surplus in recent years. The bank had hoped to hit the golden 8% figure last year, but inflation hit 10.8% despite all efforts.
Exports declined slightly last year due, according to some experts, to a weaker dollar and some uncertainty about the fate of the Central American Free Trade pact. The surprising budget surplus, some 1.6% of the gross internal product, will allow the Central Government to transfer some funds to cover losses that contributed to the higher than expected inflation rate.
Gutierrez admitted some uncertainty in the reduction of inflation, depending as it does on the prices of imported petroleum and grains. In its struggle to rein in inflation, the Central Bank took the extreme measure of lowering interest rates 2.75% percentage points to 3.25% in order to curb speculation the entry of short term speculative capital.
In a realistic attempt to be conservative in the face of global economic uncertainty, the Central Bank is predicting only a 3.8% economic growth for this year, despite the 6.8% the economy reached last year.