He Central Bank of the Dominican Republic (BCRD) reduced its monetary policy interest rate (MPR) by another 25 basis points, reducing it from 6.25% to 6.00% annually. This is the fourth consecutive reduction so far in 2024.
Within the decisions made at its monetary policy meeting in November 2024, it was decided reduce the facility rate permanent liquidity expansion (Repos to 1 day), from 6.75% to 6.50% annually, while the interest-bearing deposit rate (Overnight) was reduced from 4.75% to 4.50% annually.
“This flexibility program monetary policy should contribute to accelerating the transmission mechanism of monetary policy and reduce interest rates on loans to productive sectors and to households, promoting the growth of private credit and creating favorable conditions to maintain the dynamism of domestic demand,” the entity considered.
“For this measure, the recent evolution of the international environmentparticularly interest rate reductions in the most advanced economies, raw material prices and global uncertainty,” the document states.
Additionally, the directors of the monetary body valued the performance of the economy Dominican Republic and the available monetary margins, given an inflation that has remained in the lower part of the target range of 4.0% ± 1.0% during the current year, and the recent deceleration of private credit.
250 basis points
With this decision to reduce the MPR, the reference interest rate accumulates a decrease of 250 basis points since May 2023.
Other liquidity measures
The BCRD has been implementing complementary measures to increase liquidity in the financial system, including:
- The extension of repo facilities up to a period of 28 days.
- The elimination of provisions for interbank operations that use BCRD or Ministry of Finance securities as underlying securities.
- The redemption, upon maturity, of securities of the Central Bank for about 140,000 million pesos during the last quarter of 2024.
- The approval of the extension, for one year, of some 68,000 million pesos of the rapid liquidity facility (FLR), in order to neutralize the contractive effect of the return of these payments to the Central Bank.
The latest to boost the economy
The most recent decision was release of legal reserve resources by the Monetary Board for an amount of 35,335 million pesos, equivalent to 1.75% of the liabilities subject to reserve requirements, for the channeling of loans intended for the acquisition of homes, construction and interim, at interest rates of up to 10% annually .
“It is important to highlight that the 40% of these resourcesequivalent to about 14,000 million pesos, will be allocated to the acquisition of low-cost homes with terms of up to 7 years, facilitating access to financing for lower-income families,” the note states.
He remaining 60%about 21,000 million pesos, will be channeled into interim loans and the construction of homes with terms of up to 2 years, as well as the acquisition of homes with a value of up to 15 million pesos, with terms of up to 7 years.
Inflation under control
In fact, the interannual inflation was 3.16% in October, while core inflation, which excludes the prices of the most volatile components of the basket and is more directly associated with monetary conditions, remains close to the center of the target, standing at 3.96% in October 2024.
The forecasting models of the BCRD indicate that both general and underlying inflation would remain within the target range of 4.0% ± 1.0%, in an active monetary policy scenario.
International environment
At the international level, the economy of the United States of America (USA) remains resilient, projecting growth of 2.7% by 2024, according to Consensus Forecasts. Likewise, labor market indicators remain robust.
Meanwhile, the inflation has decreased significantlystanding at 2.6% in October 2024. Against this backdrop, the Federal Reserve made an additional cut of 25 basis points in the federal funds rate in November and is expected to continue reducing its reference rate in future meetings, highlights the BCRD .
In the Euro Zoneeconomic growth of 0.8% is expected in 2024, affected by geopolitical conflicts. Interannual inflation stood at 2.0% in October, aligning with the goal of the Central Bank European (ECB).
Given this scenario, the ECB reduced its monetary policy rate by 25 basis points in October and additional cuts are expected in the coming months.
In Latin Americainflation has remained within the target range in most economies, allowing for reductions in monetary policy rates. Since 2023, the main accumulated decreases, according to the Central Bank have been:
- Chile (600 basis points)
- Costa Rica (500)
- Colombia (350)
- Uruguay (300)
- Peru (275)
- Paraguay (250)
- Dominican Republic (250)
- Mexico (100)
- Guatemala (50)
On the other hand, the Central Bank of Brazil increased its rate by 75 basis points due to inflationary pressures on the demand side, the statement indicates.
As to raw materialsthe price of Texas intermediate oil (WTI) was around $70 per barrel at the end of November, a level similar to that of October.
Meanwhile, the freight transportation cost has moderated, although it remains elevated due to geopolitical conflicts in the Middle East and climatic factors that affect global trade routes.
Performance of the Dominican economy
At the national level, the economy grew 5.4% year-on-year in October, reaching an average of 5.1% in January-October, close to its potential. Annual growth of around 5% is projected in 2024, one of the highest rates in the region, according to the IMF, the World Bank and ECLAC.
He private credit in national currency grew 11.5% year-on-year, while the circulating medium (M1) slowed to 3% year-on-year. The broader monetary aggregates (M2 and M3) gradually converge with the growth of nominal GDP, according to the BCRD Monetary Program.
In it external sectortourism, exports, remittances and foreign direct investment maintain favorable performance. The exchange rate has remained relatively stable, with an accumulated depreciation of 3.6% in November, while international reserves reached 13.5 billion dollars in October, exceeding the metrics recommended by the IMF, according to the entity’s analysis.
