He explained that price dynamics continue to be affected by more permanent external shocks than anticipated, associated with higher oil prices and other raw materials important for local production, as well as the increase in the global cost of container transport and other disruptions in supply chains.
SANTO DOMINGO – The Central Bank decided to increase its monetary policy interest rate by 50 basis points, from 4.50% to 5.00% annually. As a result, the rate for the permanent liquidity expansion facility (1-day repos) increases from 5.00% to 5.50% annually, and the rate for remunerated deposits (overnight deposits) rises from 4.00% to 4.50% annually.
In a statement issued this afternoon, monetary authorities indicated that this decision is based on a comprehensive assessment of the performance of the global economy, the increased persistence of inflationary pressures, and the outlook for international financial conditions.
He explained that price dynamics continue to be affected by more permanent external shocks than anticipated, associated with higher oil prices and other raw materials important for local production, as well as the increase in the global cost of container transport and other disruptions in supply chains.
He added that, in particular, the monthly variation of the consumer price index (CPI) in December was 0.73%, while the year-on-year inflation at the end of 2021 was 8.50% and the year-on-year core inflation, which excludes the most volatile components of the basket, reached 6.87% in December 2021, reflecting second-round effects on production associated with supply shocks.
"Looking ahead, the BCRD's forecasting system indicates that, in an active monetary policy scenario, year-on-year inflation would converge to the target range of 4% ± 1% during the monetary policy horizon, slower than originally anticipated," the Central Bank explained.
He emphasized that this decision to increase the benchmark interest rate is part of the monetary policy normalization plan being implemented by the Central Bank with the aim of moderating price shocks and contributing to the convergence of inflation to the target range, in a context of high economic activity dynamism.
"In that sense, this 50 basis point increase in the monetary policy rate, together with the 150 basis point increase in November and December, places the reference rate at 5.00% per annum," he specified
It notes that, in addition, the Central Bank of the Dominican Republic (BCRD) has significantly reduced the excess liquidity of the financial system, especially through open market operations, to accelerate the transmission mechanism of monetary policy, with the aim of mitigating additional inflationary pressures and preventing future overheating of the economy that could cause an internal macroeconomic imbalance.
