SANTO DOMINGO.- Following the decision by the Central Bank of the Dominican Republic (BCRD) to once again increase its monetary policy interest rate (MPR) by 25 basis points, from 8.25% to 8.50% annually, economists believe that consumer and mortgage loans would be affected.
We are sharing a publication from the Diario Libre newspaper from this date, with reactions from experts:
“The effects on consumer loans, in particular, will be affected by the rise in interest rates, and the same will happen to a lesser extent with mortgage loans,” said economist Iván Rodríguez.
He also pointed out that the immediate effects on inflationare already reflected in the Consumer Price Index (CPI). That is the objective of this monetary policy, the economist explained, adding that central banks around the world are implementing it where inflation is high.
In contrast, Rafael Espinal, coordinator of the economics program at the Technological Institute of Santo Domingo (Intec), indicated that this increase in the monetary policy rate is intended to further restrict the money supply in order to combat inflation.
“The Central Bank is responding to an observed inelasticity in aggregate demand, which means that, despite inflation, consumption remains high and has not responded effectively to sustained increases in the monetary policy rate throughout the year,” he said.
Furthermore, he specified that the measure corresponds to the trend of the Fed's monetary policy in the United States and is taken to prevent the flow of capital in dollars from the Dominican Republic to the USA.
Espinal said that the rate of inflation is slowing, but is still far from the Central Bank's targets, so further increases in the monetary policy rate are expected. "I would say that the effect has been less than expected by the monetary authorities.".
The Central Bank of the Dominican Republic (BCRD) explained on Monday that, due to the timely start of the process of increasing the monetary policy rate (MPR) in November of last year, the monetary policy transmission mechanisms have been operating effectively, and therefore year-on-year inflation is expected to continue slowing down in the coming months.
Indeed, the Central Bank of the Dominican Republic (BCRD) indicated that with this 25 basis point increase and under current economic forecasts, the benchmark interest rate has reached the appropriate level for inflation to converge to the target range of 4% ± 1% before the end of the second quarter of next year.
Indeed, restrictive monetary measures, along with lower inflation expectations, have contributed to the real interbank interest rate being approximately one percentage point above its estimated neutral level.
The Central Bank also indicated that it has maintained a favorable differential with respect to the interest rates of advanced economies, contributing to capital flows.
In turn, there is evidence of a significant slowdown in monetary aggregates and an increase in interest rates at multiple banks, mainly in deposit rates.
He emphasized that in the current complex environment, risks remain high. In that regard, “the Central Bank of the Dominican Republic (BCRD) will be continuously monitoring external financial conditions and the expectations of economic agents, in case it becomes necessary to take additional measures to preserve price stability.”.
He argued that, in the international environment, geopolitical tensions have led to a deterioration of global economic projections.
In that order, in its most recent World Economic Outlook report, the International Monetary Fund (IMF) forecasts global growth of 3.2% for 2022, while the outlook for global inflation remains high.
He explained in his document that, in the United States of America, our main trading partner, year-on-year growth stood at 1.8% in the third quarter, equivalent to an annualized quarter-on-quarter expansion of 2.6%, after contracting during the first two quarters of the year.
This helped alleviate concerns that the US economy is currently in recession.
On the other hand, the Central Bank authorities explained that year-on-year inflation is beginning to moderate, going from 9.1% in June to 8.2% in September, although it still remains well above its target of 2.0%.
In that context, the Federal Reserve has increased its benchmark interest rate by 300 basis points this year and another 75 basis point increase is expected at its next meeting on November 2.
As for the Eurozone, economic conditions are being affected by the armed conflict between Russia and Ukraine; growth is projected at 3.1% for 2022, while inflation increased to 10.7% in October, the highest since the creation of this bloc of countries.
European Central Bank
Faced with this scenario, the European Central Bank increased its policy rate by 75 basis points in October, bringing the year-to-date increase to 200 basis points. Analysts consider another 75-basis-point increase in the benchmark interest rate highly likely for its next meeting.
Latin America
In Latin America, almost all central banks have increased their monetary policy rates, placing them significantly above pre-pandemic levels, as is the case with:
- Argentina (reference rate at 75.00%),
- Brazil (13.75%),
- Chile (11.25%),
- Colombia (11.00%).
In addition, Uruguay (10.75%), Mexico (9.25%), Costa Rica (9.00%), Paraguay (8.50%), Dominican Republic (8.50%), Peru (7.00%), Nicaragua (6.00%) and Guatemala (3.00%).
Source: Free newspaper with modified title.
