The Central Bank of the Dominican Republic kept its monetary policy rate unchanged at 5.0 percent as domestic demand remains below its long-term trend, but the bank expects a rebound in private credit and economic activity as market interest rates decline following two interest rate cuts earlier this year.
The central bank cut rates in June and August for a total reduction of 125 basis points and the bank said this easing, along with a reorganization of public finances and a new agreement with the International Monetary Fund (IMF), "would help improve the macro economic conditions in the coming quarters."
The central bank said in a statement that the decision to keep the rate steady also took into account the latest projections that call for inflation to fall below the lower limit of the bank's 2012 target, but within the bank's 2013 target range of 5.0 percent plus/minus one percentage point. The bank has a 5.5 percent inflation target for 2012, also with a 1.0 percentage point range.
In August inflation in the Dominican Republic rose to an annual rate of 2.16 percent from July's 1.6 percent, the central bank said.
"Forecasting models do not show significant inflationary pressures over the monetary policy horizon," the central bank said in a statement.
It also said that capital flows to emerging economies were on the rise following the latest policy move by the U.S. Federal Reserve that has "sent a signal of moderate growth and low inflation pressures, which is reflected in a deprecation of the dollar and moderating oil prices."
In added there was the prospect of recession in the euro area for the rest of the year and part of 2013.