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Costa Rica central bank hikes benchmark rate

Banco Central de Costa Rica's board on April 5 unanimously decided to raise its benchmark interest rate by 50 basis points to 2.25%.

In raising the benchmark rate, the central bank noted that inflation in the country has "shown a slow convergence" toward its target inflation range, but is still below the lower limit of that range. Inflationary expectations over the past month, however, ticked to 4.0% after holding at 3.0% for several quarters.

The central bank also noted that local financial savings have drifted toward dollarization, which negatively impacts the effectiveness of monetary policy and, indirectly, pushes inflationary expectations upward.

"Given the changes in the international environment and the restrictions imposed by the absence of a solution to the structural problem of public finances, it is necessary to avoid an additional deterioration in the attractiveness of savings denominated in national currency," the central bank said.

Banco Central de Costa Rica also lowered its basic passive rate, known as TBP, by 5 basis points from the prior week to 4.45%, and dropped the effective dollar rate, or TED, 8 basis points to 2.08%.