Sunday, November 1, 2020

Dominican Rep. holds rate, says high inflation transitory

     The central bank of the Dominican Republic left its benchmark interest rate steady after cutting it twice this year, saying recent inflationary pressures are of a transitory nature and inflation is expected to decelerate and converge toward the center of its target range during the monetary policy horizon.
     The Central Bank of the Dominican Republic (BCRD) left its monetary policy interest rate at 3.0 percent after cutting it by a total of 150 basis points this year following cuts in March and September, it said in a statement that was released on Oct. 31 following a policy meeting on Oct. 30
     Since July 2019, when BCRD began its easing cycle, the rate has been cut five times by a total of 250 basis points.
     Inflation in the Dominican Republic rose for the fourth consecutive month to 5.03 percent in September from 4.8 percent in August, influenced by higher food prices due to the impact of drought at the start of the year, from recent storms on the island and higher prices for the some imports, such as wheat, soybeans and corn, the central bank said.
     However, BCRD said its own forecast, and expectations of economic agents, indicate price pressures are transitory and inflation is expected to converge to the center of its target range of 4.0 percent, plus/minus 1 percentage point. 
      The economy of the Dominican Republic is continuing to gradually recover after hitting a bottom in April and the central bank expects economic activity to continue to recovery in coming quarters until growth exceeds the economy's potential in 2021 once the health and economic crises from the COVID-19 pandemic has been overcome.
     The Monthly Index of Economic Activity rose to minus 5.6 percent year-on-year in September after minus 29.8 percent in April, with cumulative growth of minus 8.1 percent in the first nine months.
     In addition to rate cuts, BCRD has made 190 billion pesos available to financial intermediaries and said more than 140 billion of this has been channeled to households and productive sectors.
     Today the central bank raised its Quick Liquidity Facility by 40 billion pesos that can be allocated to new loans to the productive sectors, refinancing and debt restructuring at more favorable terms, such as lower interest rates and longer terms.
      Private credit in pesos expanded by an annual rate of over 9 percent by the end of October, the central bank said, adding this was one of the highest growth rates in the region and the strength of the country's macroeconomic fundamentals and inflation expectations provide the space for continued implementation monetary stimulus with the aim of supporting the gradual economic recovery.
     It added there had been a progressive recovery of the inflow of foreign currency in recent months, mainly due to a rise of 37.1 percent in family remittances in September, and a 4.5 percent rise in exports in the same moth, partly offsetting the negative impact on tourism from the pandemic.
      In addition, foreign direct investment topped US$2 billion in the first 9 months of the year and is projected to be close to its average in the last decade of US$2.5 billion by the end of the year, reflecting the confidence of investors in the country's resilience in the face of adverse shocks, BCRD said.
      The peso was trading at 58.5 to the U.S. dollar today, largely steady since mid-June, down 9 percent since the start of this year.



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