SANTO DOMINGO.-At its monetary policy meeting this December, the Central Bank of the Dominican Republic (BCRD) decided to reduce its monetary policy interest rate (TPM) by 25 basis points, lowering it from 6.00 to 5.75% annually, as a follow-up to a reduction trend that began in September of this year.
With the decision to reduce the TPM again, the benchmark interest rate has accumulated a decrease of 275 basis points since May 2023.
A press release from the agency highlights that the program of reductions, along with a series of monetary easing measures that the Central Bank has been applying, "should accelerate reductions in bank interest rates as the monetary policy transmission mechanism operates; supporting the growth of private credit and fostering favorable conditions to maintain the dynamism of domestic demand.".
The Central Bank also decided at its December meeting to reduce the rate on the permanent liquidity expansion facility (1-day repos) from 6.50% to 6.25% annually. Furthermore, it decided to maintain the rate on remunerated deposits (overnight deposits) at 4.50% annually.
"This measure took into consideration the recent evolution of the international environment, particularly the recent reductions in interest rates in advanced economies and global uncertainty," the Central Bank of the Dominican Republic (BCRD) explained in a statement.
"Additionally, the good performance of the Dominican economy and monetary space were taken into account, given that inflation has remained in the lower part of the target range of 4.0% ± 1.0% during the current year and the recent moderation of private credit," he added.
According to the institution, year-on-year inflation stood at 3.18% in November, while core inflation, which excludes the prices of the most volatile components of the basket and is more directly associated with monetary conditions, remained around the center of the target, at 3.93% in that month.
"The BCRD's forecasting models indicate that both headline and core inflation would remain within the target range of 4.0% ± 1.0% by the end of this year and during 2025, in an active monetary policy scenario," it projects.
Measures implemented to promote liquidity
The Central Bank of the Dominican Republic (BCRD) has been implementing complementary measures to increase liquidity in the financial system, including extending repurchase agreements to a term of up to 28 days and eliminating provisions for interbank operations that use BCRD or Ministry of Finance securities as underlying assets
Likewise, the Monetary Board approved the release of legal reserve resources for 35,355 million pesos for the channeling of loans for the acquisition of housing, construction and interim loans; which together with the redemption at maturity of Central Bank securities for about 140,000 million pesos during the last quarter of 2024, represent measures to provide liquidity to the financial system for about 175,000 million pesos.
In addition, the extension for one year of approximately 68 billion pesos of the rapid liquidity facility (FLR) was approved, in order to neutralize the contractionary effect of the return of these payments to the Central Bank.
