The central bank of the Dominican Republic raised its monetary policy interest rate by 50 basis points to 5.50 percent, describing this as a preventative measure that reflects the balance of risks surrounding inflation projections, market expectations, the domestic economy, expectations the U.S. Federal Reserve will raise its rate, the trend toward higher international oil prices and the uncertainty generated in international financial markets from the U.S. Presidential election.
It is the first change in policy rates by the Central Bank of the Dominican Republic (CBRD) since a rate cut in June 2015 and comes as September inflation eased to 1.35 percent from 1.47 percent in August, well below the central bank's target of 4.0 percent, plus/minus 1 percentage point.
While the central bank acknowledged that inflation remains below its target, it said this was largely due to the positive supply shock from the fall in international oil prices and comes amidst an economy that is growing above its potential.
The central bank expects the recent gradual increase in oil prices to continue, creating a potential risk that inflation will deviate from its target in 2017. In addition, higher oil prices will impact the current account, which recorded a surplus in the first quarter of this year following three consecutive quarters of deficit.
The Gross Domestic Product of the Dominican Republic grew by an annual rate of 8.7 percent in the second quarter of this year for growth of 6.9 recent in the first nine months of the year.
Current forecasts call for GDP growth of 6.5 percent this year, the highest growth rate in Latin America for the third consecutive year.
Credit to the private sector also grew at an annual rate of around 12 percent in October, above nominal GDP, and beyond what the central bank had expected in its monetary program.