The issue and repayment of the Treasury Bills issued by the Central Bank in favor of the Ministry of Finance will not have an inflationary effect, that is, it will not cause an increase in prices, explained Eduardo Prado, manager of the Central Bank of Costa Rica.
According to the hierarch, the expectation of a prompt approval of the bill for the Strengthening of Public Finances (file 20.580) confirms the very limited effect that would have on the economy.
Another characteristic of the recent indebtedness with the Treasury is that it was done for only 90 days, a very short term, in comparison with the operations that were made in the mid-nineties.
It is believed that the Treasury Bills are inflationary instruments because they are an emission of colones that the Central Bank releases in the economy; however, under current conditions, that greater amount of money can be “sterilized” or recovered by the issuing entity and the period is very short.
Prado explained that the Central Bank agreed to the Bills to meet a temporary need of the Ministry of Finance, because the lack of fiscal balance and its effect on public debt can affect the Central Bank’s work to meet its objectives.
An OECD study estimates that each percentage point in the growth of public debt (to compensate for the deficit between government income and expenditure) can translate into an increase of one to 3.5 percentage points in long-term inflation. Thus, an early approval of the fiscal reform would help slow down the growth of the debt and would facilitate the application of monetary policy and the control of inflation.