"This decision would allow financial intermediation entities, especially savings and loan associations, to have greater resources available for financing the acquisition of low-cost housing and its construction through interim loans.".
SANTO DOMINGO.- In its session yesterday, June 1, 2023, the Monetary Board approved a set of liquidity provision measures for RD$94 billion, aimed at promoting the flow of financing under favorable conditions to the productive sectors and Dominican households.
These measures are aimed at complementing the decision adopted by the Central Bank of the Dominican Republic (BCRD) to reduce its monetary policy interest rate by 50 basis points, from 8.50% to 8.00% annually, considering the return of inflation to the target range of 4% ± 1% at the close of May 2023, as a result of the monetary restriction program implemented since the end of 2021.
These liquidity measures by the Monetary Board include the release of resources from the legal reserve requirement for approximately RD$34 billion, equivalent to 2% of the liabilities subject to legal reserve requirements, to be channeled as loans to productive sectors and households, through multiple banks, savings and loan associations and other financial intermediaries, at an interest rate of up to 9% per year, valid for four years.
It is worth noting that this decision would allow financial intermediation entities, especially savings and loan associations, to have greater resources available for financing the acquisition of low-cost housing and its construction through interim loans.
Additionally, the Monetary Board established a new Rapid Liquidity Facility (RLF) of RD$60 billion to provide additional liquidity to the financial system and facilitate financing for the private sector at an interest rate no higher than 9% per annum for two years. The Central Bank will grant these resources to financial intermediaries at an interest rate of 3% per annum, guaranteed by securities issued by the Central Bank and the Ministry of Finance.
These facilities would offset the return of resources provided by the Central Bank during the COVID-19 pandemic. It is worth noting that, to date, the Central Bank of the Dominican Republic (BCRD) has already received approximately RD$114 billion from these facilities, which has contributed to a significant slowdown in monetary aggregates.
The approval of this monetary stimulus program aims to accelerate the transmission mechanism of monetary policy to generate a more pronounced decrease in market interest rates in the coming months and a greater boost to economic activity. It is important to note that the Central Bank of the Dominican Republic's forecasting models indicate that even with the implementation of these monetary stimulus measures, inflation would remain within the target range of 4% ± 1% over the monetary policy horizon.
