Thursday, December 30, 2021

Dominican Rep. raises rate 2nd time to pre-Covid level

      The central bank of the Dominican Republic raised its interest rates for the second consecutive month to their level prior to the COVID-19 pandemic, saying the tightening aims to return inflation to its target, anchor inflation expectations and reduce the risk that an overheating economy raises "an overflow of inflationary pressures and a domestic macroeconomic imbalance."
      The Central Bank of the Dominican Republic (BCRD) raised its monetary policy rate by a further 100 basis points to 4.50 percent, with the rate now back to its level in February 2020 before the central bank cut rates in March and then in September last year by a total of 1.50 percentage points.
      With the economy of the Dominican Republic bouncing back faster than expected, BCRD last month entered the second phase of its process of normalizing monetary policy by raising the rate 50 basis points. 
      The first phase of monetary policy normalization began in August as funds granted to firms and households during the pandemic began to return to the central bank as they matured or were repaid.
      BCRD today also raised the interest rate on its permanent liquidity expansion facility and the rate on overnight deposits by 1 percentage point to 5.0 percent and 4.0 percent, respectively.
      Inflation in the Dominican Republic rose to 8.2 percent in November from 7.7 percent in October and BCRD forecast inflation would converge to its target of 4.0 percent, plus/minus 1 percentage point, during the second half of 2022, but at a slower rate than originally expected.
      The central bank said prices continue to be affected by more permanent supply shocks than expected, along with higher prices for oil and important raw materials used in local production, along with a rise in global freight costs due to container shortages and other supply chain distortions.
      Globally, the economic outlook remains positive, the central bank said, cautioning uncertainty around the pace of virus infections and disruptions to supply chains persist.
      The recovery of the domestic demand, however, has taken hold, BCRD said, adding the monthly indicator of economic activity rose 13.1 percent year-on-year in November, raising the accumulated expansion in the first 11 months to 12.5 percent, helped by a good performance of construction, local manufacturing, free zones, commerce along with the hospitality sector.
      In light of the faster-than-expected reactivation of economic activity, BCRD again raised its estimate of economic growth this year to around 12.0 percent. 
      In the second quarter of this year, the gross domestic product of the Dominican Republic expanded 25.4 percent from the same quarter last year, up from 3.1 percent in the first quarter.
      In November the central bank already raised its forecast to around 10.7 percent from a forecast of 10 percent in October.



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