SANTO DOMINGO- The Central Bank of the Dominican Republic (BCRD) reported yesterday, Friday, that at its monetary policy meeting in March 2023, it decided to keep its monetary policy interest rate (TPM) unchanged at 8.50% per year.
He also indicated that the rate of the permanent liquidity expansion facility (1-day Repos) remains at 9.00% per annum and the rate of remunerated deposits (Overnight) continues at 8.00% per annum.
"This decision is based on a comprehensive assessment of the recent performance of the economy, especially inflation, and the recent turbulence in global financial markets that increased external uncertainty," the Central Bank of the Dominican Republic (BCRD) statement said.
The Central Bank of the Dominican Republic (BCRD) detailed that international commodity prices, especially oil, remain moderate, while container transport costs and disruptions in global supply chains continue to decrease.
At the domestic level, he explained that the inflationary dynamic continues to respond favorably to the monetary restriction program and the moderation of domestic demand, as well as to the subsidies implemented by the Government.
Indeed, he added that the monthly variation of the consumer price index (CPI) was 0.11% in February; contributing to a reduction in overall inflation of 326 basis points, going from a peak of 9.64% in April 2022 to 6.38% in February 2023, with the expectation that in March year-on-year inflation could be below 6%.
Meanwhile, core inflation, which excludes the most volatile components of the basket that are not directly influenced by monetary policy, also shows a downward trend, according to the Central Bank of the Dominican Republic (BCRD), falling from 7.29% in May 2022 to 6.40% in February 2023.
"It is important to reiterate that the Central Bank of the Dominican Republic (BCRD) gradually increased its monetary policy rate (MPR) by 550 basis points between November 2021 and October 2022, maintaining a pause during the last five months," the BCRD noted.
He added that the "timely" monetary reaction has facilitated a "significant" increase in the nominal interbank interest rate and a decrease in inflation expectations, causing the real interbank rate to be close to five percentage points above its estimated neutral level, which is contributing to a moderation of domestic demand and a more accelerated fall in inflation.
In addition, the entity specifies, monetary aggregates have slowed considerably, especially the circulating medium (M1), which has gone from growing at a peak of 30% year-on-year during 2021 to expanding below 10% in March 2023, reflecting the normalization of the money supply as a result of the measures adopted.
On the other hand, the Central Bank explained that private credit in national currency is beginning to show signs of moderation, going from an annual growth of close to 15% at the end of 2022 to an expansion of approximately 12.5% in March 2023.
Furthermore, since the beginning of the TPM increase cycle, an increase in the interest rates of multiple banks has been observed, mainly in the passive interest rate.
In this way, he added, a favorable interest rate differential has been maintained with respect to that of the United States of America (USA), contributing to greater flows of capital and foreign investment to the country, in addition to encouraging savings in national currency.
Under current forecasts, it is estimated that both the economy's liquidity levels and the policy rate are at an adequate level for inflation to converge to the target range of 4% ± 1% by mid-2023, as the monetary policy transmission mechanism continues to operate.
