SANTO DOMINGO. -The Central Bank of the Dominican Republic (BCRD) made its second consecutive reduction of the monetary policy interest rate (MPR) by 25 basis points, decreasing it from 6.75 to 6.50% annually at its monetary policy meeting in September 2024.
Likewise, the rate of the permanent liquidity expansion facility (1-day Repos) went from 7.25 to 7.00% per annum, while the rate of remunerated deposits ( Overnight ) was reduced from 5.25 to 5.00% per annum, which are those that are applied between transactions of the financial entities.
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, according to a press release from the organization.
Additionally, the good performance of the Dominican economy and the gradual convergence of the pace of expansion of private credit in national currency to nominal GDP growth were considered, in a context in which inflation has remained during the current year in the lower part of the target range of 4.0% ± 1.0%.
Year-on-year inflation
Year-on-year inflation in the Dominican Republic has decreased significantly, reaching 3.42% in August 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 4.05% in August 2024, the note says
The BCRD's forecasting models indicate that both headline and core inflation would remain within the target range of 4.0% ± 1.0% over the monetary policy horizon, in an active monetary policy scenario.
With this decision to reduce the Monetary Policy Rate (MPR), the benchmark interest rate has accumulated a decrease of 200 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 200 billion pesos to the private sector, at interest rates of up to 9.0% per year.
Additionally, the Central Bank of the Dominican Republic (BCRD) eased the permanent liquidity facilities for financial institutions, extending the terms of repurchase agreements with the issuing entity, the document says.
International scenario
In the international environment, the U.S. economy remains resilient, with Consensus Forecasts Meanwhile, labor market indicators have continued to moderate, and year-over-year inflation slowed to 2.5% in August 2024.
The Central Bank of the Dominican Republic (BCRD) indicated that, given this scenario, the Federal Reserve made its first interest rate cut since March 2020, reducing the federal funds rate by 50 basis points at its September meeting, and two additional cuts are expected in the remainder of 2024.
In the Eurozone, economic activity is expected to grow by 0.7% in 2024, according to Consensus Forecasts, though this growth will be impacted by geopolitical conflicts. Meanwhile, year-on-year inflation reached 2.2% in August, moving closer to the 2.0% target.
In this context, the European Central Bank resumed its interest rate reduction program at its September meeting, lowering the deposit facility rate by 25 basis points to 3.50% per annum, the monetary body highlighted.
In Latin America, inflation has remained within the target range in almost all countries, although inflationary pressures have been observed in some of the larger economies. In response, 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 from 2023 are:
- Chile (575 accumulated basis points)
- Costa Rica (475)
- Uruguay (300)
- Colombia (250)
- Paraguay (250)
- Peru (250)
- Dominican Republic (200)
- Mexico (75)
- 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.
