Uncertainty follows move to let dollar float

The Banco Central’s decision to let the U.S. dollar float against the colon has generated plenty of uncertainty.

Olivier Castro, president of the Banco Central, dropped the bombshell, and the Asociación Bancaria Costarricense quickly said in a statement that the route the Banco Central was taking is the correct one and that the central bank would avoid speculative movements.

What other steps the central bank will take remains to be seen exactly what the central bank will do. The banking association characterized letting the dollar float was a first step in stemming inflation.

The Banco Central prohibited in the middle of last year individuals and companies from bidding on dollars at the daily money market. They restricted that type of transaction just to banks.

Last March the dollar was 571 against the colon and the Central bank was pouring in millions to keep it from getting higher. The bank said then that it dropped $19 million in the money market defending the colon.

The bank reported in early December that its dollar reserves have been depleted by some $120 million.  However,  in a statement released over the weekend, the central bank said it had dollar reserves of $7.3 billion.

The central bank statement also contended that the dollar was floating already because since Dec.12, 2013, the bank has not had to intervene to keep the dollar within the limits that have been established.

However, it said it reserved the right to intervene in the money exchange market to prevent what it called violent fluctuations.

The starting rate for today is 530 colons to sell dollars and 542 to buy them. However, these numbers were established before the central bank announcement Saturday.

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