Costa Rican Colon to Float Against Dollar as Bank Releases Brake

Costa Rica will allow the value of its currency, the colon, to float against the U.S. dollar after decades of gradually reduced brakes on its volatility, the country’s central bank announced Saturday.

Costa Rica implemented a “currency band” in October 2006 after 22 years of small devaluations. The band limited the colon’s value to a range of 500 to 866 per dollar.

Central Bank President Olivier Castro said at a news conference in San Jose on Saturday that under the new system authorities will only intervene when the colon experiences “abnormal fluctuations.”

“This strategy will allow a greater flexibility in the exchange rate,” Castro said. “The macroeconomic conditions are adequate for this migration.”

Costa Rica’s colon has fallen 4.6 percent against the dollar in the past 12 months to 536 on Friday, as Castro said the currency has been in “de facto float” for a year. The bank sold about $2.8 million this year to stabilize the colon.

Costa Rica’s economy will expand 3.4 percent this year and 4.1 percent in 2016, Castro said. The bank will maintain its inflation target between 3 percent and 5 percent for the next two years, he said.

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