Economist recommends financing now, long-term and with a fixed rate
Taken from Diario Libre
SANTO DOMINGO.- The Central Bank's recent decision to increase its monetary policy interest rate by 50 basis points, from 3.00% annually to 3.50%, is projected to impact the interest rates of regular banks, according to economists consulted by Diario Libre.
“By increasing the monetary reference rate, the Central Bank is driving up financial market rates, meaning that the era of cheap loans is coming to an end,” says Rafael Espinal, coordinator of the Economics and Financial Engineering programs at the Technological Institute of Santo Domingo (Intec).
“From this moment on, loan interest rates will increase again, and that obviously implies that the demand for financing in commercial banks will decrease,” he adds.
On March 16, 2020, the Central Bank decided to preemptively reduce its monetary policy rate from 4.50% to 3.50% annually, which it had maintained at the former percentage since August 2019. The measure was taken "in light of the significant increase in global uncertainty associated with the economic impact of the coronavirus.".
Then, in August 2020, it reduced it from 3.50% to 3.00%. Now, in November 2021, it decided to raise it back to 3.50%. The bank reported that the decision is based “on a comprehensive assessment of the impact of COVID-19 on global output and increased external inflationary pressures.”.
Espinal indicates that the new increase is an indication that the bank is trying to contain the effects of inflation, that is, price increases, due to the amount of money that was put into circulation last year to speed up the economic recovery.
“It’s part of an economic cycle,” says Espinal. “As the economy has been recovering, the bank is returning to what we call a restrictive policy, that is, a policy of higher interest rates to prevent the flow of money, or rather, the amount of money that goes from commercial banks to businesses through loans and to individuals.”.
Miguel Collado, executive vice president of the Regional Center for Sustainable Economic Strategies (Crees), observes a cycle of normalization with the bank's decision, which is in line with international decisions.
“Central banks are starting to correct, the FED (US Federal Reserve) too (…), and the Central Bank of the Dominican Republic has consequently followed that policy that is already beginning,” he says.
Given this outlook, Espinal advises securing financing now, with a long-term, fixed-rate loan, before the upward trend in interest rates intensifies. He estimates that the increase will be most noticeable starting in the second quarter of next year.
