SANTO DOMINGO– The Central Bank of the Dominican Republic (BCRD), at its monetary policy meeting in July 2023, decided to maintain its monetary policy interest rate (MPR) at 7.75% per annum. Likewise, the rate for the permanent liquidity expansion facility (1-day repos) remains at 8.25% per annum, and the rate for remunerated deposits (overnight deposits) continues at 6.75% per annum.
The interest rate reduction measure takes into account the uncertainty factors arising from the international environment; in a context in which domestic inflation is in the center of the target range of 4.0% ± 1.0%, as a result of the monetary and fiscal policies implemented, as well as the lower pressures of domestic demand.
The monthly variation of the consumer price index (CPI) was 0.22% in June; contributing to the year-on-year inflation continuing to decelerate from a peak of 9.64% in April 2022 to 4.00% in June 2023, equivalent to a drop of 564 basis points during this period.
Similarly, the agency explains that core inflation, which excludes the prices of the most volatile components of the basket, continues its downward trend, decreasing from 7.29% in May 2022 to 5.33% in June 2023. Looking ahead, forecast models indicate that inflation will remain within the target range of 4.0% ± 1.0% for the remainder of 2023 and into 2024, under an active monetary policy scenario.
In this context of low inflationary pressures, the Central Bank changed its restrictive stance and has reduced its monetary policy rate by 75 basis points cumulatively (50 basis points at its May meeting and 25 basis points in June), pausing at the July meeting.
These measures have been complemented by a liquidity provision program, through the release of reserve requirements and the Rapid Liquidity Facility, to facilitate financing for productive sectors and households under favorable conditions. The objective of these measures is to accelerate the transmission mechanism of monetary policy, boosting private credit and supporting economic recovery for the remainder of the year.
In the international arena, global growth prospects have improved, with the International Monetary Fund (IMF) projecting an expansion of 3.0% for this year. In particular, the United States economy has been more resilient than anticipated, expanding by 2.6% year-on-year during the second quarter of 2023, while the labor market is experiencing full employment.
Inflation in the US has continued to slow, reaching 3.0% in June 2023, although it remains above its 2.0% target. Given this scenario, the Federal Reserve raised its benchmark interest rate by 25 basis points at its last meeting, after a brief pause.
In the Eurozone (EZ), Gross Domestic Product (GDP) expanded by 0.6% year-on-year in the second quarter of 2023, impacted by the war between Russia and Ukraine, which has led to recessionary conditions in some economies within the bloc. Meanwhile, year-on-year inflation in the EZ moderated to 5.3% in July, although it remains high relative to the 2.0% target. Against this backdrop of persistent inflationary pressures, the European Central Bank continued its tightening cycle, raising its policy rate by 25 basis points at its most recent meeting.
In Latin America, inflation has maintained its downward trend in recent months, returning to the target range in most countries with inflation-targeting frameworks. In this context, the central banks of the Dominican Republic, Chile, Costa Rica, and Uruguay have begun to reduce their benchmark interest rates, while the rest of the region has paused.
