Wednesday, December 30, 2020

Dominican Rep. holds rate 4th time, sees 6% growth 2021

     The central bank of the Dominican Republic maintained its key interest rate for the fourth month in a row and while it reiterated inflation temporarily will exceed its target, it also forecast economic growth in 2021 will exceed its potential and output should rise around 6.0 percent.
     The Central Bank of the Dominican Republic (BCRD) left its monetary policy rate at 3.0 percent, unchanged since Aug. 31 when the rate was cut for the second time this year following a cut in March.
     The two cuts this year total 150 basis points and follow three rate cuts in 2019 in July, August and September.
     Since the July rate cut, which was decided on June 30, 2019, the policy rate has been cut by a total of 250 basis points.
     Inflation in the Dominican Republic has been rising for the last six months and rose to 5.26 percent in November, above the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
     BCRD attributed the rise to a rise in food costs due to the delayed impact of the drought at the start of the year, from two storms, and higher cost of imports, freight and transportation costs.
     Looking ahead, the central bank forecast inflation would temporarily top its target range in the first months of 2021 and then converge to the center of its target range.
     BCRC added it still has room to maintain favorable monetary conditions to support economic activity as inflation expectations remain anchored to the midpoint of its inflation target.
     The economy of the Dominican Republic is continuing to recover, with the monthly economic activity index showing minus 3.4 percent in November, sharply up from minus 29.8 seen in April.
     This means the accumulated growth rate in the first 11 months was minus 7.3 percent, the bank said, adding its forecast show that economic activity will continue to strengthen progressively and growth in 2021 could be around 6.0 percent, supported by monetary and fiscal policies.
     The Dominican Republic's gross domestic product shrank an annual 16.9 percent in the second quarter of this year after zero growth in the first quarter.
      Due to the rate cuts, the weighted average lending rate of banks in the Dominican Republic has declined to around 9.8 percent in December from 13.3 percent t in March, private credit in pesos has expanded around 9.0 percent by the end of December while there has also been a positive trend in tax collections and foreign direct investment is projected to reach some US$2.5 billion in 2020, close to the average of the last  decade.
     At the same time, the central bank said international reserves have risen to US$10.62 billion by the end  of 2020, the highest level ever recorded, the equivalent of 13.5 percent of GDP or some 6-1/2 months of imports.


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