The Central Bank's decision to raise its Monetary Policy Rate to 5% annually seeks to reduce the impact of inflation and ease pressure on the exchange rate.
SANTO DOMINGO. – The Central Bank's monetary policy decision to raise its interest rate by 50 basis points, from 4.50% to 5% annually, will be reflected in the coming months in both lending and deposit rates, and will also help control price trends, although it will impact the growth of the gross domestic product (GDP).
According to Luis Manuel Piantini, former vice-governor of the Central Bank, this decision lowers the demand for money and the demand for goods.
"That way prices fall until they balance with the demand for money," the economist said.
The vice dean of the Faculty of Economics at UASD, Antonio Ciriaco Cruz, affirms that the 50 basis point increase in the TPM will have significant repercussions on active and passive rates of 3 and 3.5 percentage points, “and that will have an immediate effect on investment and private consumption decisions.”.
According to Ciriaco Cruz, the Central Bank is trying to anchor inflation expectations contained in this year's monetary program at 4%.
He argued that if geopolitical conditions persist in international markets, there will be greater repercussions and further increases in the Monetary Policy Rate of around 6%, "and it is obvious that this will have repercussions on the growth of the Dominican economy.".
He states that the BC's decision will slow economic growth in the medium and long term, and that if this trend continues, it will result in growth of less than 5%.
On the subject, the president of the Dominican College of Economists (Codeco), Rafael Espinal, stated that the Central Bank's measure will impact the financial market in the coming months.
It estimates that rates will rise by around 3% compared to current interest rates.
“Undoubtedly…that will affect consumption and investment, but it stops the upward trend of the dollar in the market and the impact this has on prices,” Espinal said.
He asserts that the Central Bank's objective is to prevent the dollar from rising, "and that's correct." However, there is imported inflation due to rising oil prices, shipping costs, and raw materials, which is exogenous and cannot be stopped by restrictive policies.
“It will affect productive sectors, especially the construction sector which depends on financing, as well as commerce and industries because it penalizes cash flow and consumer credit,” he explained.
