This paper analyzes the exchange rate market in Costa Rica, Monex, between 2007
and 2025. I show that exchange rate returns became more predictable when the country’s
credit rating worsened. I argue that this relationship is due to the central bank’s
reaction to the country’s downgrades. In these periods, the central bank only partially
replenished reserves sold to state owned companies, a policy akin to covered shorting.
As the country’s fiscal problems receded in 2023, the exchange rate returns again
became less predictable.