Taken from Listín Diario
SANTO DOMINGO- Interest rates for loans show relative stability despite the increases implemented by the Monetary Board in its Monetary Policy Rate (MPR) as a measure to contain inflation in the Dominican market. One of the reasons for this stability is the high liquidity of the financial system, as well as the fact that millions of dollars in resources remain available from the facilities granted to finance companies and families in response to the impact of the pandemic.
The highest interest rates are applied to consumer or personal loans. As of October 27, borrowers taking out loans for consumer goods or personal expenses were paying rates of 19.49%. This is separate from credit card financing, which is the most expensive in the financial system and which, as of October, had a rate of 48%.
Trade loans closed in June, July, August, and September with relatively stable rates of 10.22%, 10.92%, 11.37%, and 11.94%. By October 27, some deals had closed with interest rates as high as 12.12%, almost a full percentage point higher than the previous month. However, the monthly average closed at 12.14%.
Customers of financial intermediation entities who have contracted consumer or personal loans closed deals with active rates of 17.75% in June and July, 17.85% in August, 19.39% in September and 19.46% on October 27.
The mortgage and development sector closed deals in June and July with rates of 11% and 11.55%, respectively, and at 11.83% in September. As of October 27, deals were closed with rates of 13.36%, although the weighted average was 11.78%.
Preference
Within the financial system, there is a category of clients classified as "preferred" due to their high credit rating in terms of risk and their high level of compliance. In this segment, the weighted average interest rate for transactions closed from October 1st to 27th was 10.05%. Preferred clients by sector include those who negotiate consumer or personal loans, as well as mortgage and development loans. The average interest rate for preferential consumer loans was 12.03% in October, and for mortgages, it was 9.86%.
On the 27th of last month, commercial transactions closed with an average interest rate of 12.40%, consumer and personal loans with 19.54%, and mortgage loans with 13.16%. The weighted average of the prime rate was 13.16%, while consumer loans had an average rate of 11.49% and mortgages an average rate of 10.78%.
Any increases that may be recorded in financing are those that are new, because the financial intermediation sector has contracted many loans at fixed rates for a limited time and up to the duration of these, many of which were contracted at housing and car fairs.
Others were hired in the aftermath of the pandemic when the Monetary Board began implementing expansionary measures to boost demand and help businesses and households.
Measures
To counteract the impact of the pandemic on the economy, the Central Bank implemented an expansionary policy that released more than RD$215 billion from the legal bank reserve requirement so that financial intermediation entities could place them in new loans and refinancings with an average term of three years and an interest rate of up to 8% per year.
The measures subsequently generated a policy reversal, that is, a restrictive policy to curb the evident inflation in the prices of the family basket, which led to the Central Bank's monetary policy rate increasing from 3% in November 2021 to 8.25% last September.
However, despite the possibility of new restrictions from the US Federal Reserve (FED), which sets the benchmark interest rate, the Central Bank remains optimistic about the strong fundamentals of the local economy with GDP growth projections of 5% to 5.2%.
Even if the restrictive policy is maintained until the end of 2022, prices are expected to moderate, which in turn will motivate the application of a new expansionary stance within one to two years and the policy rate will fall to 7.6% and 6.3%.
Expansion
According to a report by the Central Bank of the Dominican Republic (BCRD), the expansionary policy employed helped to create the conditions "so that, once the gradual opening of the economy began, the recovery of national production would be possible, initially in a moderate way and subsequently, with a notable acceleration.".
