CRC: Intervention To Slow Appreciation

Efforts by the Banco Central de Costa Rica (BCCR) to reduce upside pressure on the exchange rate have so far proved ineffective, and as a result we believe the government will now take exchange rate policy into its own hands. With more aggressive intervention imminent, we expect colón strength to be capped at CRC500.00/US$ between now and end-2010, and depending on the level of intervention could even see a period of weakness back towards support at CRC545.00/US$. However, rather than a sustained sell-off our core scenario is for a period of sideways trading between the CRC500.00-515.00/US$ range, with the currency to average CRC520.00/US$ by year-end.

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