by Tatiana Gutiérrez Wa-Chong

In the coming months, there will be a slight increase, but it won’t reach an equilibrium point.

Johnny Monge Mata
“Companies must prepare to handle payments in different currencies from their income, hence the need for diversified savings,” said Johnny Monge Mata, Financial Director of Banco Popular. Photo Courtesy of Banco Popular.

The Central Bank’s reference price for the dollar against the colón is expected to remain below ȼ540 for the rest of the year. This poses a challenge for individuals and businesses with income in US dollars.

Experts consulted by LA REPÚBLICA recommend avoiding risky decisions and seeking professional advice to mitigate impacts if necessary.

They also suggest seeking job or business opportunities that don’t rely on the dollar, thereby generating income in other currencies or markets unaffected by exchange rate fluctuations. If this isn’t an option, consider acquiring currency hedges to mitigate the risk of losses from colón appreciation.

“In personal finance, the main recommendation is not to take on dollar obligations if your income isn’t in that currency; alternatively, if you earn in colón and have dollar debts, a good option is to prepay installments or buy dollars now to avoid higher costs later when the dollar rises,” highlighted Ivannia Campos, corporate finance and investment banking consultant.

The dollar price is forecasted to rise by 4% over the next 12 months, which would be approximately between ȼ530 and ȼ540 per dollar, according to Central Bank estimates. The projected maximum threshold is far from an equilibrium point.

“The dollar price should fluctuate between ȼ620 and ȼ640 to reach a middle ground that benefits the productive sector and debtors,” stated economic analyst Daniel Suchar.

The historic low the dollar experienced in the first half of the year is likely to halt for several reasons: the Central Bank will continue adjusting its monetary policy rate, and there’s a reported decrease in currency supply and an increase in demand influencing this dynamic.

RECOMMENDATIONS
It’s important to take precautions and avoid risks that could affect your finances:

For Individuals:

-Avoid dollar obligations unless part of your income is in that currency.
-Before taking a currency position (as an investor or debtor), assess if you can handle the currency risk amid exchange rate volatility.
-Budget your dollar expenses to understand your needs in the short and long term.
-Regularly review your dollar obligations based on market conditions to consider restructuring.
-Allocate part of your monthly income to dollar savings to cover obligations when the exchange rate rises.

For Businesses:

-Develop a risk management strategy with a financial advisor, considering currency risk scenarios.
-Optimize costs and improve operational efficiency.
-Seek opportunities to generate income in other currencies or markets unaffected by colón appreciation.
-Review corporate cost and expense structures to identify efficiencies and optimize cash flow.
C-onsider financial instruments like futures contracts.

PROJECTIONS
The dollar price won’t rise significantly this year, and here are the reasons.

ADRIANA RODRÍGUEZ
General Manager
ACOBO Puesto de Bolsa

Anticipating dollar behavior is difficult because Monex is a very small market, and it’s unclear if the Central Bank will increase its aggressiveness in buying dollars. Thus, businesses should take currency hedges, and individuals shouldn’t take risks.

JAVIER CORTÉS
Investment Strategist
BN Valores

For the second half of the year, a drier market is expected, characterized by lower currency supply to banks and lower traded volumes in Monex. As the year progresses, Costa Rica’s economy typically sees fewer dollars, and we’ve observed moderate upward movements in exchange rates, except in 2022, where volatility was much higher. Therefore, businesses and individuals should take precautions and avoid risks.

GERARDO CORRALES
Economist
Economía Hoy

Currency hedges are available for companies, but those with dollar income have seen a 27% reduction in the last year and a half due to colón appreciation, while their expenses remain the same or even increase. Many export, tourism, and free zone companies are shrinking, first reducing employment.

SILVIA JIMÉNEZ
Investment Manager
Grupo Financiero Mercado de Valores

Individuals and businesses must stay informed about exchange market variations. Establish stress scenarios to determine acceptable exchange rates and mechanisms to handle increased financing needs due to exchange rate rises.

JOHNNY MONGE MATA
Financial Director
Banco Popular

Businesses should prepare for payments in different currencies from their income, hence the need for diversified savings. Despite indicators suggesting exchange rate movements, they depend on many factors causing uncertainty, making speculation risky when funds are needed for scheduled payments or tight budgets.

ELIZABETH MORALES
Deputy Manager
Coopecaja

If there is a trend change in the dollar, adjust your income availability if you have dollar debts. Companies should leverage currency hedges.

LAURA MORENO
Vice President of Corporate Relations
BAC

Businesses should use currency hedges to protect cash flows. These contracts are common, with a minimum amount of $100,000 and a maximum term of 12 months. The main benefit is providing certainty about the exchange rate, facilitating budgeting, stabilizing cash flow, and enhancing business relationships.

DANIEL SUCHAR
Financial Analyst
Independent

Dollar volatility shows we shouldn’t spend what we don’t have and always save 10% monthly. For businesses, the advice is similar: avoid dollar debts without dollar income, but save to gain when rates rise.

Reference