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What Will Happen With The Rise In The Dollar Exchange?

The increases in the dollar exchange rate surprised many this week, who were confident that the dollar would not rise against the colon so fast.

Although the reference rate this morning by the Central Bank (Banco Central) is still a couple of colones shy, many banks are already trading above the ¢600 colones per one US dollar mark.

The sell rate at Scotibankcr.com this morning is ¢601; Davivienda has it at ¢600. The Banco CT is ¢602. The Global Exchange money change house as the colon at ¢666 for one US dollar. The State banks are all at ¢598.

Following are some questions and answers. Please take note that the answers are not expert advice. For clear and precise answers to any questions you may have on the exchange rate, you should seek out expert advice.

1. Will prices rise?

Yes. Goods and services in dollars, but usually paid in colones, such as internet fees, private medicine, hotel rates, rents, the price of vehicles and real estate, among others.

Within weeks, we can see increases reflected in regulated tariffs for goods and services: bus fares, gasoline prices, toll booths (on the Ruta 27), for example. Basically, all goods and services whose cost is indexed directly or indirectly to imported products will see an increase.

In the coming months, increases will be felt in imported goods such as clothing, food, fuel (gasoline and natural gas), electronics, spare parts, etc. The timing of the increases is depending on the rotation of the current inventories and arrival of new products that are paid with dollars.

2. Will loans be more expensive?

Yes. The first impact will be suffered by those who have loans or credit in dollars and income in colones. Immediately, each increase in the exchange rate causes an increase in the fees paid.

Debts in foreign currency (dollars) will also be affected by increases in interest rates. There will also be an increase in interest rates in colones. The Central Bank announced that there if there are inflationary pressures, it will resort to increasing rates.

3. When will the increases stop?

This is very difficult to determine. Under the managed floating exchange rate mechanism, the Central Bank allows the forces of supply and demand to predominate but intervenes if there are abrupt movements in the exchange rate. The rules of intervention are not made public.

4. Is it a good time to convert savings to dollars?

Not necessarily. Buying dollars that requires more colones can incur a loss if and when the exchange rate lowers. The recommendatiom here is to seek out expert advice or make the change to only a part of the savings.

5. What to do if you find prices denominated in dollars?

If you are going to pay in colones an item priced in dollars, such as a vehicle or a computer, ask the seller to specify clearly what the final price will be in colones. Under the current legislation, the dollar price must be equal to the reference exchange rate established by the Central Bank for that day.

6. How much has the colon devaluated against the dollar?

Between January 1 and May 24, 2017, about ¢39.39 colones or almost 7%. On January 1 of this year the buy rate was ¢548.18 and the sell ¢561.10 for US$1 dollar. This morning, May 25, the exchange rate is ¢585.56 and ¢598.49, respectively.

7. Will the colon continue to devaluate against the dollar?

Your guess as is good as mine, but most probably yes.

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