SANTO DOMINGO – The Central Bank's reduction of the monetary policy rate by 25 basis points, from 7.00% to 6.75% annually, plays a crucial role in reactivating private investment and puts the country on a path of growth, according to Dominican economic experts.
According to economist Rafael Espinal, this measure is "healthy," and he emphasized that actions like these are designed to boost domestic demand at a time when the Central Bank has managed to control inflation and strengthen international reserves, which currently exceed 15 billion dollars.
In the current context, the decision is undoubtedly a good step towards improving the local business climate, lowering bank rates for loans, and reducing the rates on government bonds to finance the public deficit, the economist highlighted in an interview with EL DÍA.
Furthermore, he emphasized the importance of the international environment, especially with the expected easing of interest rates in the United States, which he described as fundamental to preventing capital flight and, at the same time, attracting Dominican savers abroad to invest in the country.
For his part, economist Juan del Rosario pointed out that this is the first time in a year and a half that the Central Bank has followed a monetary policy aligned with the expectations of the United States Treasury, which anticipates a reduction in the interest rate between September and October.
“This reduction in the monetary policy rate seeks to stimulate economic growth, which is expected to register growth of around 5% of the gross domestic product by the end of this year,” Del Rosario pointed out.
The economist highlighted that among the effects of the measure is the potential to increase private consumption if accompanied by an aggressive campaign by private banks.
Short-term effects
He also added that this measure also has a price effect that could translate into an increase in inflation, although he clarified that it would be very moderate and would be below the limits.
“The reduction in the monetary policy rate could put upward pressure on the exchange rate of the dollar, since the exchange rate is a price element that relates to the dollar commodity, and an increase in the availability of Dominican pesos in the economy could increase the demand for dollars, which could further push the rate upward,” Del Rosario pointed out, highlighting that the current price of that currency is around 60 pesos per dollar.
Effect on banks:
Now the rate of the permanent liquidity expansion facility (1-day repos) goes from 7.50% to 7.25% per year, while the rate of remunerated deposits (overnight) is reduced from 5.50% to 5.25% per year.
Source: El Día
