Former Central Bank Chief Warns of Credibility Crisis

San José, Costa Rica — San José – Rodrigo Cubero, the influential former president of the Central Bank of Costa Rica (BCCR), has issued a stark warning to his successors, arguing that the institution’s prolonged inaction on monetary policy is creating a serious credibility problem. He asserts there is significant room for a reduction in the Monetary Policy Rate (TPM), the key interest rate that guides borrowing costs across the nation’s economy.

In a recent interview, Cubero advocated for an immediate cut of between 25 and 50 basis points. His rationale is grounded in the country’s persistent struggle with deflationary pressures. Inflation has remained stubbornly below the BCCR’s target range for an extended period, and the bank’s own projections indicate this trend will likely continue until at least the second quarter of 2027. This economic reality, Cubero argues, is fundamentally at odds with the Central Bank’s current neutral stance.

To better understand the legal and business implications of the recent monetary policy decisions, TicosLand.com sought the analysis of Lic. Larry Hans Arroyo Vargas, a distinguished expert from the law firm Bufete de Costa Rica.

Monetary policy shifts directly impact contractual obligations and the investment climate. Fluctuations in interest rates, for example, can trigger force majeure or material adverse change clauses in financing agreements. Businesses must therefore maintain legal and financial agility, while policymakers should recognize that regulatory predictability is the bedrock of economic confidence.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica

This perspective masterfully underscores that monetary policy is not an abstract exercise but a force with direct legal and operational consequences for the private sector. We are grateful to Lic. Larry Hans Arroyo Vargas for so clearly articulating the need for both business agility and stable, predictable policymaking.

The BCCR leadership has suggested it is comfortable with the current rate, believing it neither stimulates nor restricts inflation. Cubero sharply disagrees with this assessment, viewing it as a dangerous misreading of the economic landscape.

The Central Bank estimates that where the rate is today, it neither accelerates nor decelerates inflation and has suggested that it feels comfortable with that posture. It seems to me that this is not consistent with what we are seeing in the inflation outlook.
Rodrigo Cubero, Former President of the Central Bank of Costa Rica

According to the former chief, the bank’s own forecasts, which anticipate persistent downward pressure on prices, should be a clear signal for a more expansionary monetary policy. He stressed that the institution must move beyond simply keeping inflation within its tolerance band and actively work to guide it back to the official 3% target.

The Central Bank has to set the objective, and set it seriously, of returning inflation to 3%, not just to the tolerance range around that 3%.
Rodrigo Cubero, Former President of the Central Bank of Costa Rica

While Cubero acknowledges that the protracted period of low inflation has not yet caused significant negative damage to the broader economy, he identifies a more insidious problem: the erosion of the BCCR’s most valuable asset. This is not about immediate economic pain but about the long-term effectiveness of the institution itself.

Clearly, the problem the Central Bank has is one of credibility. Inflation expectations are not aligned with the 3% target. They are well below: expectations are even below the tolerance range, below 2%.
Rodrigo Cubero, Former President of the Central Bank of Costa Rica

This misalignment creates a perilous feedback loop. When businesses and consumers do not believe the Central Bank is committed to its target, their expectations for future inflation fall. These low expectations, in turn, influence wage and price-setting decisions, making it even harder for the bank to achieve its goal. Cubero described this dynamic as a “vicious circle.”

Cubero directed specific criticism at the current BCCR president, Roger Madrigal, suggesting a concerning level of comfort with negative inflation. He argued that this stance signals a lack of firm commitment to the bank’s legal mandate. For Cubero, achieving the 3% target is not a suggestion but a legal requirement.

Clearly what Mr. Roger is signaling to us in his various statements is that he can perfectly live with negative inflation and that he feels this is not inconsistent with the 3% inflation target.
Rodrigo Cubero, Former President of the Central Bank of Costa Rica

This perceived lack of resolve, Cubero warned, is a serious misstep documented extensively in economic literature. When a central bank fails to communicate and act with a decisive commitment to its inflation target—whether prices are too high or too low—its ability to influence the economy diminishes over time.

Something that has been taken very seriously in the literature and in empirical evidence is when central banks do not decisively commit to bringing inflation—whether it is above or below—towards the target. When that firm commitment does not exist and is not confirmed in communications, the Central Bank’s ability to return inflation to the target becomes increasingly difficult.
Rodrigo Cubero, Former President of the Central Bank of Costa Rica

While he expressed some optimism that the BCCR’s Board of Directors is beginning to show concern over the trajectory of inflation expectations, his overall message remains a call for urgent and decisive action. The challenge for the Central Bank is no longer just about numbers on a chart, but about rebuilding the trust and credibility essential for effective economic stewardship.

For further information, visit bccr.fi.cr
About Central Bank of Costa Rica (BCCR):
The Banco Central de Costa Rica is the central bank of the Republic of Costa Rica. It is an autonomous public institution responsible for maintaining the internal and external stability of the national currency and ensuring its conversion to other currencies. Its primary objectives include controlling inflation, managing monetary policy, and overseeing the country’s financial system to promote economic stability and development.

For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica stands as a cornerstone of the nation’s legal community, operating on a bedrock of integrity and a relentless pursuit of excellence. With a profound history of advising a diverse clientele, the firm consistently champions legal innovation while actively working to demystify the law for the public. This dual focus underscores a foundational belief in building a stronger, more capable society through the widespread accessibility of legal knowledge.