With this decision to reduce the TPM, the benchmark interest rate has accumulated a decrease of 225 basis points since May 2023.
SANTO DOMINGO. -The Central Bank (BCRD), in its monetary policy meeting of October 2024, decided to reduce its monetary policy interest rate (TPM) by 25 basis points, decreasing from 6.50% to 6.25% annually.
Likewise, the rate of the permanent liquidity expansion facility (1-day Repos) is reduced from 7.00% to 6.75% per annum, while the rate of remunerated deposits (Overnight) is reduced from 5.00% to 4.75% per annum.
This measure took into consideration the recent evolution of the international environment, particularly the available space given the reduction in interest rates in the most advanced economies and the lower prices of raw materials, the organization's press release highlights.
Additionally, it was noted that in the Dominican Republic inflation has remained in the lower part of the target range of 4.0% ± 1.0% during the current year, in a context of economic growth around its potential and gradual convergence of the pace of expansion of private credit in national currency to nominal GDP growth.
Year-on-year inflation has decreased significantly, reaching 3.29% in September 2024. Similarly, core inflation, which 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 4.01% in September 2024.
The BCRD's forecasting models indicate that both headline and core inflation would remain within the target range of 4.0% ± 1.0%, in an active monetary policy scenario.
With this decision to reduce the TPM, the benchmark interest rate has accumulated a decrease of 225 basis points since May 2023.
During this period, the Central Bank of the Dominican Republic (BCRD) implemented a liquidity provision program, through which financial intermediaries have channeled loans of approximately RD$200 billion to the private sector, at interest rates of up to 9.0% per year.
Additionally, the liquidity conditions of the financial system would continue to improve, reflecting the easing of repurchase agreements and the expansionary effect of BCRD securities maturities during these months.
The increased liquidity will contribute to the transmission mechanism of monetary policy, which should lead to lower interest rates going forward.
In the international context, the United States economy grew by 2.7% year-over-year in the third quarter of 2024, while labor market indicators remained robust. Meanwhile, year-over-year inflation slowed to 2.4% in September 2024, moving closer to its target.
In this context, the Federal Reserve has reduced its federal funds rate by 50 basis points and is expected to continue lowering its benchmark rate for the remainder of 2024.
In the Eurozone, economic activity grew by 0.9% in the third quarter of 2024, impacted by geopolitical conflicts. Meanwhile, year-on-year inflation stood at 1.7% in September, below the 2.0% target.
Given this scenario, the European Central Bank continued its program of interest rate reductions at its October meeting, lowering the deposit facility rate by 25 basis points to 3.25% per annum.
Latin America
In Latin America, inflation has remained within the target range in almost all countries. In this regard, central banks have lowered their policy rates from levels that reached double digits in most countries of the region. Specifically, the reductions in benchmark rates since 2023 are: Chile (600 basis points cumulative), Costa Rica (500), Uruguay (300), Colombia (300), Paraguay (250), Peru (250), Dominican Republic (225), Mexico (75), and Guatemala (25).
However, the Central Bank of Brazil raised interest rates by 25 basis points at its September meeting due to increased inflationary pressures from the demand side.
As for raw materials, the price per barrel of West Texas Intermediate (WTI) crude oil has decreased in October, trading at around US$69 per barrel at the end of the month.
Meanwhile, freight transport costs continue to decrease in October, after increasing in previous months due to geopolitical conflicts in the Middle East and weather factors that have affected important routes for global trade in goods.
National perspectives
At the national level, the economy expanded by 5.6% year-on-year during the month of August 2024, so that the average growth during January-August reached 5.1%, close to its potential.
In this context, the labor market continues to show favorable indicators, with an open unemployment rate of 5.3% and the highest historical level of employed workers, exceeding five million.
The Dominican economy is expected to sustain growth of around 5% in 2024, one of the highest expansions in the region, according to international organizations such as the International Monetary Fund (IMF), the World Bank and the Economic Commission for Latin America and the Caribbean (ECLAC).
The pace of expansion of private credit in national currency has continued to moderate gradually, settling at around 12.5% year-on-year.
Growth rates for private loans and broader monetary aggregates have gradually converged to nominal GDP growth, in accordance with the Central Bank's Monetary Program.
Meanwhile, foreign exchange generating activities continue to show favorable performance even in a context of uncertainty in the international environment, with tourism, exports from free zones, remittances and foreign direct investment standing out.
In that order, the relative stability of the exchange rate has been maintained, with an accumulated depreciation of 3.3% in October, while international reserves stood at around US$14.5 billion in September, equivalent to about 11% of gross domestic product (GDP) and about five months of imports, exceeding the metrics recommended by the IMF.
It highlights that the Dominican economy has strong macroeconomic fundamentals and a resilient productive sector, which are reflected in a better perception of country risk compared to the average of Latin America and other emerging economies.
