The Central Bank of the Dominican Republic (BCRD) has increased its monetary policy rate (MPR) by 250 basis points since November 2021, and has done so – according to what it says – in line with the cycle of increases in interest rates at the international.
At its monetary policy meeting in March 2022, it decided to increase it by 50 basis points, going from 5.00% to 5.50% per year.
In addition, since November, the agency has significantly reduced the excess liquidity of the financial system, through open market operations and the gradual return of the resources that had been granted during the pandemic.
These measures have managed to speed up the monetary policy transmission mechanism, contributing to the adjustment in domestic interest rates and a significant moderation in the growth of monetary aggregates, as reported in a press release.
The current decision is based on an exhaustive evaluation of the behavior of the world economy, the greater persistence of inflationary pressures and the increase in international uncertainty derived from the recent geopolitical conflicts.
He explained that price dynamics continue to be affected by external shocks that are more permanent than expected, associated with the notable increase in oil prices and other important raw materials for local production, as well as the high costs of international container transport and other disruptions in supply chains.
In particular, the monthly variation of the consumer price index (CPI) in February 2022 was 0.92%; meanwhile, year-on-year inflation, that is, in the last 12 months, stood at 8.98%.
On the other hand, year-on-year core inflation, which excludes the most volatile components of the basket, stood at 6.97% in February, reflecting second-round effects on production associated with external supply shocks.
Regarding the interest rate corridor, the rate of the permanent liquidity expansion facility (1-day Repos) increases from 5.50% to 6.00% per year and the rate of interest-bearing deposits (Overnight) from 4.50% to 5.00% per year.
The BCRD’s forecasting system indicates that, in an active monetary policy scenario, inflation would gradually converge to the target range of 4% ± 1% during the monetary policy horizon, but at a slower pace than expected.
It seeks to counteract price shocks
“It is important to highlight that, in addition to the monetary normalization policies, the fiscal measures that are being implemented to mitigate the increase in the prices of raw materials and the stability observed in the foreign exchange market are elements that would facilitate the convergence of inflation. to the goal,” said the BCRD. He said that he continues to implement measures to counteract external shocks on prices.
