Monday, December 31, 2012

Dominican Republic holds rate, inflation close to target

    The Dominican Republic's central bank held its key interest rates unchanged, saying it would maintain a cautious stance given the uncertain international scenario and an inflation rate that is in line with the bank's target.
    The Central Bank of the Dominican Republic (BCRD) kept its key interest rate steady at 5.0 percent and the Lombard rate steady at 7.0 percent. The BCRD has cut its benchmark rate by 175 basis points this year, the most recent 50 basis point cut was in August.
    The inflation rate in the Dominican Republic rose slightly to 3.37 percent in November from 2.87 percent in October and the central bank expects the rate to be around 4.0 percent at the end of the year, within the bank's target range of 5.0 percent, plus/minus one percentage point.
    "Market expectations are in line with the BCRD's inflation projection while no significant deviations are looming in the monetary policy horizon, even considering the impact of tax reform on domestic prices," the central bank said in a statement from Dec. 30.
    Growth prospects for emerging economies show positive signals with no major changes in the prices of primary goods, the bank said. But the euro zone's economy is expected to remain in recession next year and the inability so far to find a solution to the U.S. fiscal problems could have a significant impact on economic activity and affect the nations that trade with the U.S.

    Economic growth in the Dominican Republic is projected at around 4 percent by the end of 2012, below its potential, and next year it is forecast at 3.0 percent but this could turn out to be higher if private credit continues to expand as it has in the last five months, the bank said.
    Private credit contracted in the first half of the year but has since expanded in response to lower interest rates and if this continues it would lead to growth in private consumption and investment.
    Annual growth in the Gross Domestic Product of the Dominican Republic was 3.8 percent in the second quarter, the same rate as in the first quarter.


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