The interest rate hike of the United States Federal Reserve it will have negative consequences for the Dominican Republic; among these, a higher cost of credit and a negative impact on exports, remittances and tourism.
The coordinator of the School of Economics of the Intec University, Richard Medinaexplained that, first of all, the measure increases the interest rates of assets in dollars, such as that of the sovereign bonds that the country places in international markets.
The government needs to issue US$2.3 billion in public debt to close the 2022 budget.
“Now in May they will be paying an interest rate of 1.5% higher than if they had issued that money in January. That is to say, a more expensive indebtedness for having waited until May to place the missing bonds, and would pay additional interest in the amount of more than US$34 million per year”, he said.
Second, Medina stressed that he encourages the Central Bank of the DR to increase its monetary policy rate to maintain the rate differential with the United States and ensure that there is no excessive outflow of capital.
This generates lower private consumption and investment, which reduce aggregate demand and the 2022 growth outlook.
A third consequence is that the US will grow less than expected, which would lead to lower demand for exports, less money available in the hands of households to send remittances or for tourism, or less investment by companies.
US Federal Reserve raises interest rates 0.5 points
The United States Federal Reserve (Fed) yesterday announced a rise in interest rates of half a point with the aim of fighting runaway inflation.
With this increase -which is double the one carried out in March-, the official interest rate of the largest economy in the world is placed in a range between 0.75% and 1%.
This is the biggest rate hike in more than two decades, since the last time the US central bank announced a half-point hike was in 2000.
In an official statement at the end of their two-day meeting, the Board of Governors of the Federal Reserve system announced that it expects to carry out more rate hikes in the future.
