Costa Rica to Buy Up to $600 Million as Currency Surges to Two-Year High

Costa Rica’s central bank plans to buy as much as $50 million a month in the foreign-exchange market in a move that analysts say is a bid to stem a rally that’s sent the colon to a two-year high.

The colon has surged 7 percent in the past three months and touched 504.75 per dollar on Aug. 31, leaving it within 1 percent of the stronger end of the 500-to-645 band that the central bank seeks to keep the exchange rate. The colon weakened 0.4 percent to 508.27 today, its biggest slide in six weeks, after the bank said in the statement that it will buy up to $600 million in the market by December 2011.

The colon reached “a level that may have been deemed as too close for comfort by the central bank,” said Alberto Franco, a former Costa Rican central bank director who is an economist with Ecoanalisis, a financial consultant group in San Jose.

The purchases could begin as soon as today, the central bank said in a statement dated Sept. 1 on its website. The bank said the goal of the purchases is to bolster its foreign reserves.

The colon has surged 11.2 percent this year against the dollar, the second-best performance in the world after the Colombian peso, according to data compiled by Bloomberg.

To contact the reporter on this story: Eric Sabo in Panama City at esabo1@bloomberg.net

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