Economy

Banco Central maintains monetary policy rate at 4.50% per annum

At its monetary policy meeting in September 2019, the Banco Central of the Dominican Republic (BCRD) decided to keep its monetary policy interest rate at 4.50% annually.

According to a statement, the decision on the reference rate is based on a detailed analysis of the balance of risks regarding inflation forecasts, including international and domestic macroeconomic indicators, market expectations and medium-term projections.

He indicated that the monthly inflation in August was 0.47%, while the accumulated inflation in the first eight months of the year stood at 1.99%. On the other hand, year-on-year inflation, that is, from August 2018 to August 2019, stood at 1.72%, staying below the lower limit of the target range.

In addition, core inflation, which reflects monetary conditions, was 2.04% in August. The inflation expectations of the economic analysts, as well as the BCRD forecast system, indicate that inflation would be at the end of 2019 around the lower limit of the target range of 4.0% ± 1.0% and would remain close to the center of the target range during the year 2020.

According to the Banco Central, “this combination of lower growth and volatility in international markets has contributed to the depreciation of almost all currencies in emerging economies and, in particular, in Latin America, in recent months.”

As for raw materials, the average price of intermediate oil in Texas (WTI) remained at around US $ 55 per barrel during the month of September, despite showing greater volatility associated with geopolitical tensions in oil producing countries.

He indicated that the average price is expected to remain below the US $ 60 per barrel for the rest of 2019, a level contemplated in the National Budget, as a result of the weakening of world demand. On the other hand, the average price of gold remained above US $ 1,500 per troy ounce in September, when it was used as a refuge of value in an environment of high uncertainty.

Locally
In the domestic context, preliminary information from the Monthly Economic Activity Index (IMAE) indicates that aggregate demand has begun to recover in response to the recent implementation of expansive monetary measures. Indeed, after an accumulated growth of 4.7% during the first half of the year, the economy expanded 4.6% year-on-year in July and accelerated to growth 4.8% year-on-year in August. If this positive trend continues during the next months, economic growth is expected to be around its 5.0% potential by the end of the year.

In particular, the monetary easing measures implemented since June, through the reduction in 100 basis points of the monetary policy rate and the release of more than RD $ 34 billion of legal reserve resources to the productive sectors , have revitalized private credit, which expands by 11% year-on-year.

“Monetary conditions will remain favorable for the next few months as the monetary policy transmission mechanisms operate, boosting domestic demand through greater investment and private consumption,” said the Banco Central.

On the other hand, the Central Bank said that the process of consolidating public finances is maintained, anticipating that a primary surplus would be reached by the end of 2019, as stipulated in the National Budget.

In the external sector, currency generating activities, such as foreign direct investment and remittances continue to show good performance – the financial institution established – compensating for the recent moderation of tourism, induced by lower world demand and by the negative media campaign before isolated cases that occurred in the sector.

“In this complex international environment, the Dominican Republic has maintained the relative stability of the exchange rate, presenting during this year an accumulated depreciation below the average of Latin American countries and emerging economies, as a result of the strength of the macroeconomic and credibility fundamentals in its economic policies, ”he said.

In the statement, the Banco Central of the Dominican Republic reaffirmed “its commitment to drive monetary policy towards the achievement of its inflation target and the proper functioning of the financial and payment systems, thus contributing to the maintenance of macroeconomic stability.”

In that regard, he said that he will continue to monitor the moderation of the world economy and the factors of both external and internal uncertainty and its impact on aggregate demand, being prepared to continue reacting in a timely manner to factors that can generate deviations from the inflation target and affect Dominican economic growth.

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