Sunday, June 30, 2019

Dominican Republic cuts rate 50 bps amid low inflation

     The central bank of the Dominican Republic lowered its monetary policy rate by 50 basis points to 5.0 percent to revitalize private credit and ensure economic growth reaches its targeted rate of 5.50 percent while inflation is expected to remain below the lower limit of the bank's target range this year.
     It is the first change in interest rates by the Central Bank of the Dominican Republic (BCRD) since a rate hike in June 2018 and the first rate cut since August 2017. The last time the rate was at 5.0 percent was in October 2016.
     BCRD said in a statement from June 28 that it had also lowered the rate on overnight deposits to 3.50 percent from 4.0 percent and the rate on repurchases to 6.50 percent from 7.0 percent.
     Inflation in the Dominican Republic fell to 1.31 percent in May, the seventh month in a row with inflation below the central bank's target range of 4.0 percent, plus/minus 1 percentage point.
     Core inflation, which excludes volatile goods such as food and fuel, fell to 1.98 percent in May and the central bank said inflation expectations had fallen across the monetary policy horizon.
     BCRD expects inflation to remain below 3.0 percent until the end of 2019 before it then rises toward the 4.0 percent midpoint in 2020.
     Along with a deceleration of global economic activity amid higher geopolitical risks and trade disputes, private investment in the Dominican Republic has also slowed, with the monthly IMAE index showing growth of 5.1 percent in the January - May period, down from 5.7 percent in the first quarter of this year.
     The central bank said it would continue to monitor the moderation of the global economy and its possible impact on domestic demand, and is prepared to react in a timely manner to any deviation from the goals outlined in its monetary program.
     Last month the International Monetary Fund (IMF) said strong private investment and a boost to consumption from monetary stimulus after a slowdown in 2017 had helped increase economic growth  in the Dominican Republic last year to 7.0 percent.
     However, growth this year is forecast to slow to 5.5 percent and then 5.2 percent in 2020 due to a less supportive external environment, slower credit and higher oil prices.
     The IMF forecast inflation would gradually rise to the central bank's target as food and oil prices pick up, estimating inflation this year would average 2.1 percent and 4.1 percent in 2020 from 3.6 percent in 2018.


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