The Central Bank of the Dominican Republic (BCRD) indicated that the decisions will contribute to reducing the financing costs of financial institutions and will result in lower interest rates for loans and credits.
SANTO DOMINGO- In order to help lower interest rates on loans in the national financial system, the Central Bank of the Dominican Republic (BCRD) announced today a 25 basis point reduction in its monetary policy interest rate (MPR), which will decrease from 7.75% to 7.50% annually.
At its monetary meeting in August 2023, the monetary entity also decided to lower the rate of the permanent liquidity expansion facility (1-day Repos) from 8.25 to 8.00% per annum; while the rate of remunerated deposits (Overnight) is reduced from 6.75 to 6.25% per annum, widening the lower range of the BCRD's interest rate corridor.
In a press release, the Central Bank of the Dominican Republic (BCRD) indicated that the decisions will contribute to reducing the financing costs of financial institutions and will result in lower interest rates for loans and credits.
"The measures adopted take into account that year-on-year inflation has been significantly reduced and is around 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 document says.
It adds that year-on-year inflation has decreased from a peak of 9.64% in April 2022 to 3.95% in July 2023, equivalent to a drop of 569 basis points during this period.
Similarly, core inflation, which excludes the prices of the most volatile components of the basket, maintains its downward trend, decreasing from 7.29% in May 2022 to 5.05% in July 2023.
Looking ahead, the Central Bank's forecast models indicate that inflation would remain within the target range of 4.0% ± 1.0% for the remainder of 2023 and in 2024, under an active monetary policy.
Cumulative decrease in TPM
In the context of low inflationary pressures, the Central Bank has reduced its monetary policy rate by 100 basis points cumulatively since its May meeting , the text emphasizes
Furthermore, it states that the decisions have been complemented by the implementation of a liquidity provision program, through the release of the legal reserve requirement and the Rapid Liquidity Facility, to channel financing to the productive sectors and households under favorable conditions.
The objective of these measures is to accelerate the transmission mechanism of monetary policy, contributing to the revitalization of credit and economic recovery going forward.
Additionally, this decision took into account recent developments in the international environment and factors contributing to global uncertainty. Specifically, Consensus Forecast for the United States of America (USA) point to a more gradual moderation than previously anticipated, with an expansion of 1.9% by the end of 2023.
On the other hand, inflation in the US has slowed to 3.2% in July 2023, although it remains above its 2.0% target. Given this scenario, market analysts anticipate that the Federal Reserve (Fed) will pause at its next meeting in September, maintaining the federal funds rate at its current level of 5.25%–5.50%.
In the Eurozone (EZ), economic growth of 0.6% per year is projected for 2023, affected by the war between Russia and Ukraine which has caused recessionary conditions in some of the main economies of this bloc of countries, the BCRD highlights.
Meanwhile, the ZE's year-on-year inflation rate moderated to 5.3% in August, although it remains high relative to the 2.0% target.
In this context of persistent inflationary pressures, analysts anticipate that the European Central Bank could raise its benchmark interest rate further during the remainder of the year, the statement said.
In Latin America, inflation has maintained its downward trend in recent months and has returned to the target range in most countries; while regional growth is projected at 1.7% for 2023.
In that context, most of these central banks have begun to reduce their monetary policy interest rates this year, including:
- Costa Rica (250 basis points)
- Uruguay (150)
- Chile (100)
- Dominican Republic (100)
- Brazil (50)
- Paraguay (25)
Additionally, other central banks in the region, such as Colombia and Mexico, are expected to begin their rate reduction cycle before the end of 2023.
