The Central Bank of the Dominican Republic (CRBBB) has cut its rate by 125 basis points this year and most recently in May.
Consumer price inflation in the Dominican Republic rose slightly to 0.23 percent in May from minus 0.04 percent in April.
The central bank targets inflation of 4.0 percent, plus/minus 1 percentage point.
The economy of the Dominican Republic is developing in line with forecasts and the monthly indicator of economic activity (IMAE) expanded by 6.1 percent at the end of April while the annual growth of credit to the private sector expanded by around 12 percent in the June.
Last month the central bank's governor raised his forecast for economic growth this year to around 6 percent, up from the previous forecast of 5.0-5.5 percent.
The Central Bank of the Dominican Republic issued the following statement:
"At its monetary policy meeting in June 2015, the Central Bank decided to keep its interest rate monetary policy at 5.00% annually.
The decision on the benchmark rate was adopted after analyzing the national macroeconomic outlook, especially the balance of risks around inflation projections and expectations of the private sector and relevant international environment for the Dominican economy. Indeed, the annual rate of inflation in May amounted to 0.23%, while in cumulative terms inflation stood at 0.19% at the end of that month.
Likewise, core inflation, monetary conditions related to the economy, stood at 2.33% in May yoy. The projections continue to indicate that inflation would remain below the lower limit of the target set in the monetary program for 2015, converging to the center of the target level of 4.0% ± 1.0% in the monetary policy horizon.
Internationally, the growth of United States of America (USA) in the first quarter was revised from a preliminary estimate of 2.4% to 2.9% in June. However, recent growth has led to a downward revision of forecasts of Consensus Forecast . In that sense, the US growth forecast was revised from 2.5% to 2.2% for 2015, while recovery is expected around 2.8% for 2016.
According to this source, the growth projections for the euro area are around 1.5%. However, there is uncertainty as to the outcome of the crisis in Greece, which could adversely affect the European economy. Projections for Latin America were revised downwards from 0.4% to 0.3%, while Asia is expected to grow around 4.7% this year. In the last month, international financial conditions have been restricted, while the dollar has tended to appreciate. Oil prices remain below the levels of recent years, at least until 2016.
Domestically, the economy develops in line with projections. The trend cycle monthly indicator of economic activity (IMAE) has a growth rate of 6.1% at the end of April. Similarly, the annual growth rate of credit to the private sector in national currency expands around 12.0% in June year on year.
It is expected to continue to strengthen the dynamism of credit to the extent that the transmission mechanism of the recent decision to reduce the interest rate monetary policy (TPM) to the lending rate is completed. It notes that the impact of reductions in the MPR in the lending rate would be even higher taking into account the recent resolution of the Monetary Board to allow the use of resources in reserve requirements for low-cost housing solutions. It is important to note that since the TPM fell for the first time, the weighted average lending rate has fallen more than 175 basis points in the financial system.
On the side of fiscal policy, the rate of revenue growth has exceeded the growth rate of government spending so far this year, obtaining a primary surplus above the provisions of the National Budget 2015 of 0.4% of GDP. Also, the external accounts evolve successfully, projecting a deficit of current account of the balance of payments at around 2.0% of GDP by year-end.This trend in external accounts will help maintain the relative stability of the exchange rate, while the CRBBB continues its process of accumulation of international reserves.
The CRBBB confirms its commitment to implement monetary policy aimed at achieving its inflation target, while also continue to monitor the evolution of the world economy and the domestic situation, to take the necessary measures to risks to price stability and the proper functioning of the financial and payment systems."