Friday, May 1, 2020

Dominican holds rate, inflation seen low but credit rising

   The Central bank of the Dominican Republic (BCRD) left its monetary policy rate steady at 3.50 percent and forecast inflation will remain below the lower limit of its target range for the rest of this year, adding that last month's monetary and financial measures to cushion the impact of the coronavirus pandemic were already boosting credit to the private sector.
     BCRD, which last months cut its rate 100 basis points, lowered the reserve requirement and injected liquidity, said it was important to highlight the economy was in a favorable cyclical position earlier this year with economic growth around potential and low inflationary pressures.
     This had given it the flexibility to meet this adverse shock from the pandemic by adopting expansionary monetary measures aimed at boosting domestic demand.
     Preliminary data from the monthly economic activity index IMAE indicate a marked slowdown in March as compared with January and February but it did not show negative economic growth during the first quarter due to the impact of COVID-19.
     Inflation in the Dominican Republic fell to 2.45 percent in March from 3.66 percent in February and 4.17 percent in January, below the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
    Core inflation, which reflects monetary conditions, rose to 2.67 percent in March.
    Of the 100 billion pesos made available to financial intermediaries, some 50 billion have been channeled through different facilities and of this some 10 billion to private loans by the release of legal reserve resources and some 40 billion to provide liquidity to financial intermediation entities through 90-day repos.
     BCRD pointed out the resources from the legal reserves had been "channel at a higher speed that all the previous occasions" when this instrument had been used and interest rates on loans granted by multiple banks during April had been reduced by some 300 basis points.
     This had led to an acceleration of some 13 percent of credit to the private sector, especially the manufacturing, hotel and restaurant, construction and commerce sectors, the bank said.
     BCRD said it has the necessary space to continue supporting the productive sectors and households once sanitary conditions allow a gradual normalization of the economy to help internal demand recover rapidly and the disbursement of some US$650 million of emergency assistance from the International Monetary Fund (IMF) will help the government face the challenges.
      BCRD said it would continue to closely follow the impact of the coronavirus on the country's economy and is prepared to continue to react in a timely manner to anything that may lead to a deviation of inflation from its target and affect economic growth.


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