The Central Bank of the Dominican Republic (BCRD) raised its monetary policy interest rate by 25 basis points, from 7.75% to 8.00% per year.
In a detailed report, the issuer assured that the decision is based on an exhaustive evaluation of the recent behavior of the world economy and its impact on inflation, considering geopolitical conflicts and the shock of global costs.
He said that price dynamics continue to be affected by external factors that are more persistent than expected, associated with the extraordinary increase in the prices of oil and other raw materials, as well as the high costs of international container transport and other disruptions in supply chains. of supplies.
In addition, he explained, domestic or local inflation has been influenced by the second-round effects of these external components and by internal demand pressures, to the extent that the economy has recovered remarkably in relation to the levels prior to the pandemic.
The rate of the permanent liquidity expansion facility (1-day repos) changes to 8.50% per year and the interest-bearing deposit rate (Overnight) to 7.50% per year.
The BCRD indicated that in particular, the monthly variation of the consumer price index (CPI) stood at 0.50% during July 2022, while year-on-year inflation, that is, in the last 12 months, stood at 9.43%. It was moderate with respect to its highest level reached in 2022 of 9.64% in April and a greater slowdown is projected in the coming months.
The interannual subjacent inflation, which excludes the most volatile components of the basket, begins to show signs of moderation, going from 7.29% in the month of May to 7.10% in July.
Faced with a scenario of high inflationary pressures, the Central Bank began a process of monetary restriction at the end of 2021 through increases in its monetary policy rate and reduction of excess liquidity in the financial system with the aim of avoiding risks of overheating of the economy and a deterioration of the differential with respect to external interest rates.
look at the region
In Latin America, almost all the central banks of the region accumulate significant increases in their reference rates since 2021 to face the high levels of inflation.
This is the case of Argentina, which has risen 3,150 basic points; Brazil (1,175 basis points), Chile (925 basis points), Paraguay (750 basis points), Colombia (725 basis points), Costa Rica (675 basis points), Peru (625 basis points), Uruguay (575 basis points), Mexico (425 basis points), Nicaragua (200 basis points) and Guatemala (50 basis points).
After the measures ordered by the BCRD, there has been a significant increase in the passive interest rate, while the increase in the active interest rate has been more gradual, remaining below pre-pandemic levels.
Likewise, a significant moderation has been verified in the growth of monetary aggregates.
Recent measures implemented by the Central Bank have reversed the expansionary monetary stance adopted during the pandemic, which will continue, the bank forecasts, contributing to the gradual convergence of inflation to the target range of 4% ± 1% over the policy horizon. monetary.
Permanent monitoring of external conditions
In this active monetary policy scenario, the BCRD said it will be permanently monitoring external financial conditions and the expectations of economic agents, in order to take the necessary measures to maintain price stability.
In the international environment, high levels of uncertainty remain, mainly due to the war between Russia and Ukraine, causing a deterioration in global economic projections.
In this sense, the forecasts for world growth continue to be revised downwards to 2.6% in 2022 according to Consensus Forecasts, while the outlook for international inflation remains high.
In the United States of America, our main trading partner, growth has slowed to 1.7% year-on-year in the second quarter of 2022, equivalent to an annualized quarter-on-quarter contraction of -0.6%. On the other hand, Consensus Forecasts moderated the growth prospects for the US economy to 1.7% for this year. Year-on-year inflation in that country exceeds more than four times the official goal maintained by the Federal Reserve.
