The Central Bank of the Dominican Republic (BCRD), at its December 2023 meeting, decided to maintain the monetary policy interest rate (MPR) at 7.00% per annum.
The rate of the permanent liquidity expansion instrument (1-day Repos) remains at 7.50% per annum and the rate of remunerated deposits (Overnight) remains at 5.50% per annum.
This measure takes into consideration the recent evolution of the international context and the behavior of the Dominican economy, in particular inflation.
Therefore, year-on-year inflation has been reduced over the year and is in the middle of the target range of 4.0% ± 1.0%, as a result of the implemented monetary and fiscal policies, as well as lower fiscal pressures. internal demand.
In fact, interannual inflation decreased by 564 basis points, going from a high of 9.64% in April 2022 to 4.00% in November 2023, predicting that it would close the year 2023 below 4.00%, the center value of the target range.
Likewise, core inflation, which excludes the prices of the most volatile components of the basket such as fuel and some foods, maintains its downward trend, falling from 7.29% in May 2022 to 4.48% in November 2023.
Against this backdrop of low inflationary pressures, the Central Bank has reduced its MPR by 150 basis points cumulatively since its May meeting.
These measures were complemented with a liquidity provision program, which allowed more than RD$170 billion to be channeled through financial intermediaries, to facilitate loans to productive sectors and households with interest rates of up to 9% per annum.
These measures have contributed to accelerating the monetary policy transmission mechanism, stimulating credit and facilitating the economic recovery.
Looking ahead, forecasting models indicate that headline and underlying inflation would continue within the target range of 4.0% ± 1.0% in 2024, under an active monetary policy scenario.
The Central Bank will continue to monitor the macroeconomic environment, in particular the expected easing of international financial conditions, which would provide greater space to continue normalizing its monetary policy stance.
In the United States of America (USA), economic activity has proven more resilient than expected, while inflation continues to decline, from a high of 9.1% in June 2022 to 3.1% in November 2023 , while remaining above the 2.0% target. Given this scenario, the Federal Reserve (Fed) kept the federal funds rate unchanged in December 2023 and expects reductions throughout 2024.
In the Eurozone (EEZ), the war between Russia and Ukraine has influenced recessionary conditions in some of its major economies. Meanwhile, ZE interannual inflation fell to 2.4% in November, still above its 2.0% target. In this situation, the European Central Bank (ECB) kept its key rate unchanged in December 2023 and is expected to start the reduction cycle next year.
In Latin America (LA), inflation maintained its downward trend, returning to the target range in most countries in the region. As a result, almost all central banks have reduced monetary policy interest rates in recent months, including Costa Rica (cumulative decrease of 300 basis points), Chile (300), Uruguay (225), Brazil (200), Paraguay (175). , Dominican Republic (150), Peru (100) and Colombia (25).
As for raw materials, the price of Texas intermediate oil (WTI) has increased in recent weeks, reaching close to $75 per barrel, in a context of greater geopolitical tensions in the Middle East. Likewise, the cost of freight transportation has increased recently, due to geopolitical conflicts and climate effects, which are affecting important routes for global trade in goods.
Nationally, the Dominican economy continues its recovery process, with an expansion of 4.2% year-over-year in November, higher than October’s 3.6% year-over-year growth and 3.1 % in September, as well as 2.6% in the third quarter of 2023. The result for the month of November reflects the dynamism of the hotel, bar and restaurant sector, as well as the better performance of the construction, manufacturing, financial services and trade.
Going forward, monetary stimulus and increased public investment are expected to continue to help revive economic activity towards potential growth of 5% in 2024, which would represent one of the highest expansions in Latin America according to international organizations such as the International Monetary Fund (IMF) and consensus forecasts.
Financial conditions have reacted favorably since the start of the monetary measures, with lower interest rate levels; as well as an acceleration in the growth of monetary aggregates that expand at rates significantly higher than those of nominal gross domestic product (GDP). In this context of greater liquidity, private credit in national currency grows around 20% on an annual basis, driven by the expansion of loans to productive sectors, such as construction and trade, as well as loans to families.
On the other hand, the good performance of foreign exchange generating activities has contributed to the stability of the Dominican peso this year. Furthermore, international reserves are at high levels, exceeding $15.3 billion, equivalent to 12.8% of GDP and almost six months of imports, above the benchmarks recommended by the IMF.
Importantly, the Dominican economy is well positioned to continue to face the challenging landscape, taking into account the strength of its macroeconomic fundamentals and the resilience of its productive sectors. The Central Bank of the Dominican Republic will continue to monitor macroeconomic developments, both external and domestic, with the aim of continuing to promptly adopt the necessary measures that preserve macroeconomic stability and contribute to maintaining inflation within the target range.
2023-12-28 17:46:56
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