SANTO DOMINGO.- The Central Bank of the Dominican Republic (BCRD), in its monetary policy meeting of February 2025, decided to maintain its monetary policy interest rate (TPM) at 5.75% per year.
Likewise, the rate of the permanent liquidity expansion facility (1-day Repos) remains at 6.25% per annum, while the rate of remunerated deposits (Overnight) continues at 4.50% per annum.
This measure took into consideration the recent evolution of the international environment, particularly the greater global uncertainty and external interest rates that would remain elevated for a longer period than anticipated, the agency stated.
Furthermore, he explained that the good performance of the Dominican economy was taken into account, in a context where inflation has remained within the target range of 4.0% ± 1.0% for 14 consecutive months.
Indeed, year-on-year inflation was 3.32% in January 2025, one of the lowest among non-dollarized economies in Latin America.
Likewise, core inflation, which excludes the prices of the most volatile components of the basket and is more directly associated with monetary conditions, stood at 4.03% in January, remaining around the center of the target.
The BCRD's forecasting models indicate that headline and core inflation will remain within the target range of 4.0% ± 1.0% during 2025, under an active monetary policy scenario.
In this context of low inflationary pressures, the Central Bank has reduced its benchmark interest rate by a cumulative 275 basis points since May 2023. At the same time, the Central Bank of the Dominican Republic (BCRD) has implemented measures to increase liquidity in the financial system, including:
- The extension of repurchase facilities to a term of up to 28 days and the elimination of provisions for interbank operations that use as underlying securities of the Central Bank of the Dominican Republic or the Ministry of Finance.
Likewise, the Monetary Board approved the release of legal reserve resources in the amount of 35,355 million pesos for the channeling of loans for the acquisition of housing, construction and interim loans; which together with the redemption at their maturity of Central Bank securities for about 140,000 million pesos during the last quarter of 2024, represented measures of provision of liquidity to the financial system for about RD$175 billion.
In addition, the extension for one year of approximately 68 billion pesos of the rapid liquidity facility was approved, in order to neutralize the contractionary effect of the return of these payments to the Central Bank of the Dominican Republic (BCRD).
As a result, according to the Central Bank of the Dominican Republic (BCRD), liquidity levels in the financial system have increased significantly, contributing to a gradual reduction in bank interest rates, which should continue as the monetary policy transmission mechanism operates.
In this way, the monetary easing program is expected to support the growth of private credit and the dynamism of domestic demand during the current year.
In the international arena
In the international environment, the United States of America (USA) economy remains resilient, registering an expansion of 2.8% in 2024 and with a labor market around full employment.
In addition, inflation is showing downward resistance, reaching 3.0% in January 2025, above the 2.0% target, so the Federal Reserve has paused interest rate cuts.
- Faced with a scenario of high uncertainty and higher interest rates, the flow of capital to the US has increased, causing an appreciation of the US dollar by 7% against the world's major currencies between September and January, although it has moderated during the current month.
In the Eurozone , the Central Bank reports that economic activity would grow 0.9% in 2025 according to CFC, affected by geopolitical tensions.
Meanwhile, year-on-year inflation stood at 2.5% in January 2025, close to the European Central Bank's (ECB) target. Given this scenario, the ECB is expected to continue lowering its monetary policy rate in 2025.
In Latin America, faced with a landscape of uncertainty and high external interest rates, central banks have paused or moderated the pace of reductions in monetary policy interest rates, such as in Chile, Colombia, Costa Rica, Paraguay, Peru, Guatemala and the Dominican Republic.
Additionally, the central banks of Brazil and Uruguay have increased their monetary policy rates by 275 and 50 basis points, respectively, in response to the resurgence of inflationary pressures.
As for raw materials, the price per barrel of West Texas Intermediate (WTI) oil has remained moderate, hovering around $70 at the end of February, although risks associated with geopolitical conflicts in the Middle East persist.
Meanwhile, the price of gold continues its upward trend, exceeding $2,800 per troy ounce, as it is used as a store of value in the context of greater uncertainty.
Dominican economy
At the national level, the economy expanded by 5.0% during 2024, around its potential, driven by the good performance of the services sector and the recovery of local manufacturing and free trade zones.
By 2025, the Dominican economy is expected to sustain growth of around 4.5%, one of the highest expansions in the region, according to international organizations such as the International Monetary Fund (IMF), the World Bank and the Economic Commission for Latin America and the Caribbean (ECLAC).
Private credit in local currency maintains a healthy growth rate, registering a year-on-year variation of around 9% in February.
Similarly, monetary aggregates, such as the circulating medium (M1), the broad money supply (M2) and broad money (M3), continue to grow at rates close to the expansion of nominal GDP, consistent with what is foreseen in the Monetary Program of the BCRD.
Meanwhile, foreign exchange generating activities showed favorable performance during 2024, such as tourism (US$10,974 million), total exports (US$13,852 million) and remittances (US$10,756 million).
Additionally, the Central Bank of the Dominican Republic (BCRD) notes that foreign direct investment reached $4.512 billion in 2024, exceeding $4 billion for the third consecutive year and projected to reach $4.7 billion in 2025.
Exchange rate
In that context, the relative stability of the exchange rate has been maintained; while international reserves stood at around 14.8 billion dollars at the end of February, equivalent to about 11% of the gross domestic product (GDP) and about five months of imports, exceeding the metrics recommended by the IMF.
"It is important to highlight that the Dominican economy has strong macroeconomic fundamentals, which are reflected in a better perception of country risk compared to the average of Latin America and other emerging economies," the BCRD press release states.
The Central Bank of the Dominican Republic states that it will continue to monitor the evolution of the economy with the aim of continuing to adopt timely measures necessary to preserve macroeconomic stability and contribute to keeping inflation within the target range.
