He central bank of the Dominican Republic (BCRD) reported that at its meeting monetary politics from July 2024 decided to maintain its monetary policy interest rate (TPM) at 7.00% per year.
Likewise, the rate of the permanent liquidity expansion facility (1-day Repos) remains at 7.50% per year, while the remunerated deposit rate (Overnight) continues at 5.50% annually.
Through a note he explained that for this measure it was taken into consideration the recent evolution of the international environmentparticularly that interest rates in the United States of America (USA) have remained high for longer than expected, as well as higher raw material prices and increased container transport costs.
Additionally, the good performance of the Dominican economy and the growth of private credit, in a context in which the inflation is within the target range of 4.0% ± 1.0%.
Indeed, the BCRD pointed out that the year-on-year inflation In the Dominican Republic, it has decreased significantly, reaching 3.46% in June 2024, remaining in the lower range of the target range as a result of the monetary and fiscal policies implemented during the last year.
Similarly, he stated that the Underlying inflationwhich excludes the prices of the most volatile components of the basket and is more directly associated with monetary conditions, remains around the center of the target, standing at 3.98% in June 2024.
The forecasting models of the BCRD point out that both the inflation Both the general and underlying inflation would remain within the target range of 4.0% ± 1.0% during the current year, in an active monetary policy scenario.
“In an environment of low inflationary pressuresSince May 2023, the BCRD has reduced its TPM by 150 basis points and launched a liquidity provision program through financial intermediaries, through which loans for some 199 billion pesos have been channeled to households, productive sectors and micro, small and medium-sized enterprises (MSMEs); at interest rates of up to 9.0% per year, the document states.
In recent months, he indicated the BCRDIn a context of economic recovery, dynamic private credit and high external interest rates, the BCRD has paused TPM reductions and has been promoting the use of permanent liquidity facilities by financial institutions, extending the terms of BCRD repurchase agreements up to 28 days.
Additionally, a competitive auction was held to repurchase securities for approximately 14.7 billion pesos with the aim of increasing the liquidity of the Finance system at levels consistent with those contemplated in the Monetary Program.
In turn, the Monetary Board The Bank approved the elimination of provisions for interbank transactions carried out through short-term repurchase agreements that use BCRD or Ministry of Finance securities as underlying assets. These measures should result in lower financing costs for financial intermediaries and contribute to a deepening of the interbank market.
International stage
In the USA, the economic activity recorded a year-on-year growth of 3.1% in the second quarter of 2024, while the labor market remains at full employment.
While the inflation moderated to 3.0% in June 2024, although it remained above its 2.0% target. Against this backdrop, the Federal Reserve kept its Reference rate at the meeting in July, while market analysts expect the cycle of reductions to begin at the meeting in September.
In the Eurozone, the economic activity expanded by 0.6% year-on-year in the second quarter of 2024, affected by the war between Russia and Ukraine that has caused a slowdown in several economies of the bloc. Meanwhile, the inflation year-on-year growth stood at 2.6% in July, approaching its target of 2.0%.
In this context, the European Central Bank kept its reference rate unchanged in July, with reductions expected later in the year.
In Latin America, inflation has maintained its downward trend, returning to the target range in almost all countries with growth targets. inflation.
In the last meetings, almost all of the central banks have paused, after having lowered their monetary policy rates from levels that reached double digits in most countries in the region.
In that sense, countries that have lowered their reference rate since 2023 are:
- Chile (550 basis points accumulated)
- Costa Rica (425)
- Brazil (325)
- Uruguay (300)
- Paraguay (250)
- Colombia (250)
- Peru (200)
- Dominican Republic (150)
- Mexico (25)
Raw Materials
As for raw materials, the oil price Texas Intermediate (WTI) crude oil has remained elevated, averaging around $82 per barrel in July.
Likewise, the cost of freight transport has increased, given the geopolitical conflicts in the Middle East and climatic factors that continue to affect important routes for global trade in goods.
At the national level, the economic activity expanded 6.2% year-on-year in June, reaching an average growth of 5.1% during the first half of 2024, around its potential.
In this context, it is expected that the Dominican economy reach growth of around 5% in 2024, one of the highest expansions in the region during this year, according to international organizations such as the International Monetary Fund (IMF) and the World Bank.
Private credit
On the other hand, the growth rate of private credit The growth in domestic currency has recently moderated, standing at around 15% year-on-year; as have monetary aggregates such as the Medium in Circulation (M1), the Expanded Money Supply (M2) and Broad Money (M3), which expanded by 3.0%, 12.2% and 12.5% at the end of June, respectively.
In that sense, the variation rates of these monetary variables have begun to gradually converge to nominal GDP growth, in accordance with the provisions of the Monetary Program of the central bank.
On the other hand, the foreign exchange generating activities continue to record favorable performance, with tourism, free trade zone exports, remittances and foreign direct investment standing out.
In this context, the relative stability of the exchange rate has been maintained, while the international reserves have increased by more than 15.2 billion dollars in July, equivalent to more than 12% of the gross domestic product (GDP) and about six months of imports, exceeding the metrics recommended by the IMF.
It is important to highlight that the Dominican economy is well positioned to face the challenging global outlook, taking into account the strength of its macroeconomic fundamentals, the resilience of its productive sectors and the improvement in country risk indicators in international markets.
He Central Bank of the Dominican Republic will continue to monitor macroeconomic developments with the aim of continuing to adopt the necessary measures in a timely manner to preserve macroeconomic stability and contribute to the inflation remains within the target range.
