Costa Rica Business

INTEREST RATES IN DOLLARS VS. COLONES OF COSTA RICA Due to the strong inflationary acceleration registered in the last years, the ability of the banking system in Costa Rica to compensate this variable has decreased considerably, producing what is known as real negative rates. This means inflation in higher than the rates offered by banks therefore, occurring a loss in value of the investment and the buying capacity.

Even, the rates in dollars offered by the banking system, when translated to colones don’t allow compensating the strong acceleration the prices had in 2008. Anyhow, this investments must have the devaluation rate added, that in average has been placed between a 7 and 8% in the last years. Due to this the investors can obtain a better result by changing its positions from colones to dollars, and investing in deposit certificates in dollars and then returning to Costa Rica colones. Definitely if your investment strategy contemplates the participation in the banking market, the deposits in dollars are the best option. Besides the average six months rate in dollars in offered by the local banks placed around 4,77% annually. A deposit certificate in a US bank at a similar terms receives an average of 1,75% annually, which makes it for investors much more interesting than investing money in those instruments in the national market.

THE BANKING MARKET In Costa Rica, this market has the particularity that it is mainly of “reportos” (repos), since around 85% of the daily volume traded in the National Stock Market, corresponds to these instruments, which are none other than the interchange of securities between individuals with a promise of returning in a future time. For the professional investor this is an excellent way to manage its excess of cash flow, with interesting returns in the short run in both colones and dollars. A company can obtain near between a 5 to 8% in 30 days in dollars, and a10-13% in Costa Rica colones in a term of ten to less days.