,

Loans in Colones Get More Expensive

Interest rates on loans in colones for construction are the ones that have increased the most during the last 12 months, according to the Central Bank registry. In the image, the building of the National Center of Congresses and Conventions underway in Barreal de Heredia.  Photo Melissa Fernández

Interest rates on bank loans have increased by between 0.11% and 6.6% in the last year, and those for loans for construction, livestock and commerce, are where the highest increases have been recorded.

Data published by the Banco Central de Costa Rica (BCCR) – the Central Bank of Costa Rica – indicates that in the case of construction loans, interest rates went from around 11% at the beginning of the year to almost 18% last week.

The increase is due, mainly, to the government’s fiscal deficit, according to bankers

“The increase in interest rates is as a result of less willingness to lend, which causes credit services to become scarce, which is reflected in the rate,” said Gabriel Alpízar, manager of the Treasury at BCCR.

La Nacion reports that “…The rise in interest in colones is mainly driven by the needs of the Ministry of Finance to finance the government’s fiscal deficit in the local market, agreed consulted bankers. Also having an influence is the actions of the BCCR to stabilize the dollar price, as the entity has injected dollars into the foreign exchange market; But this has led to a reduction in liquidity in colones, said Adriana Rodríguez, Scotiabank’s economic analysis manager.”

Adriana Rodríguez, senior manager of Economic Analysis at Scotiabank, the largest private bank in the country, explained that the housing sector is characterized by a high degree of competition between banks and are long-term operations, which influences the lending rate.

“The movement of interest rates in colones is relevant because in Costa Rica there are 2.4 million local currency credit operations associated with the basic passive rate (TBP), according to the General Superintendence of Financial Entities (Sugef),” said Rodriguez.

Local bankers consulted by La Nacion agreed that the rise in interest in colones is mainly driven by the needs of the Ministry of Finance to finance the government’s fiscal deficit in the local market.

“Also influencing the actions of the BCCR to stabilize the dollar price, as the entity has injected dollars into the foreign exchange market; But has led to a reduction in liquidity in colones,” Rodríguez added.

Ronulfo Jimenez, economic adviser of the Asociación Bancaria Costarricense (Costa Rican Banking Association), stressed that the increase in interest will lead to lower consumption and private investment.

“The high fiscal deficit and its financing with domestic resources could pressure an increase in interest rates and pose significant risks to the stability and growth of the economy,” Jiménez said.