US Fed hikes to affect DR

[chico bill]

Below is an interesting Dominican Today article on interest rate rises by the US Fed and probable affects on DR's local economy.

Now we get shot down often for discussing the economy in other parts of the world as "Not DR Related"
However the world economy moves in unison.
You can expect rising interest rates in the US and Europe to affect us here, slow property sales and maybe reduce property values, increase the costs of imports and slow demand for exports and cause local interest rates to rise accordingly. Maybe the high interest rates on dollar CDs will return ?

I wish the moderators would allow some tolerance for economic discussions because many DR1 members here are trying to navigate and make financial moves with their money or just survive on limited incomes and group think can be educating.

FED rate hike will negatively affect the Dominican Republic

<p>The interest rate hike by the United States Federal Reserve will have negative consequences for the Dominican Republic; among these, a higher cost of credit and a negative impact on exports, remittances, and tourism. The coordinator of the School of Economics of Universidad Intec, Richard...

dominicantoday.com

 

[AlterEgo]

As long as there is DR content in replies, we’re good.

 

[beeza]

The dollar is gaining strength against most reserve currencies, but the peso is maintaining relative strength again the dollar......for now.

My Euros and Pounds are buying far less than what they used to.

But at least the DR govt have been able to mitigate the global price increase of fuel for the time being. But at what cost?

 

[playacaribe2]

Up to this point, at least for the last year, the Banco Central has had a nice cushion vis a vis the dollar/peso exchange rate.

Strengthening the peso, in no particular order, has been bond borrowings in dollars, bolstering their international reserves.

Next, as indicated, remittances of dollars broke records, likely due to the monetary stimulus of the US fed into all segments of the US economy.

Third, exports are up, may be not in volume, so much as in prices for those exports.........i.e, the price of gold.

Fourth, and to the credit of the Banco Central, they have raised the monetary rate in the DR from 3 to 5.5% in 6 months time (rising interest rates tend to strengthen a currency, but also make borrowing more expensive).

On the opposite side of the equation, the headwinds facing the DR are growing in intensity.

Remittances are likely to level off/fall as the US economic stimulus money has run its course.

War in Ukraine is affecting tourism, as well as inflationary pressures on everything from food to oil.

The US will likely raise interest rates 50bps next month..............again countering the recent interest rate rises by Banco Central.

The mistake Abinader is making is providing too much subsidy for both.

Now he wants to lower food tax imports, which ostensibly may help somewhat..............but that now hurts local producers.

However, monetarily speaking, his biggest glaring error has been in subsidizing fuels to the extent he has done so. Regular gasoline without the subsidy would today be 350 pesos. Small increases may have been more prudent than these continued subsidies that are just not sustainable.

As Abinader recently remarked, there is more pain and sacrifice ahead.....................and he is so right.

The devaluation of the peso is no longer a matter of if, but when.................and whether it will be orderly.


Respectfully,
Playacaribe2

 

[Gadfly]

And slow inflation obviously I forgot to add

 

[chico bill]

The dollar is gaining strength against most reserve currencies, but the peso is maintaining relative strength again the dollar......for now.

My Euros and Pounds are buying far less than what they used to.

But at least the DR govt have been able to mitigate the global price increase of fuel for the time being. But at what cost?

Fuel prices will fall if the world economy tanks like many are forecasting.
Imagine if fuel prices rise more in DR then the whole economy pays for it like a huge tax.
I think Abinader has to go looking for money somewhere soon?

 

[chico bill]

Yes the peso should see some devaluation based on other factors but then recent hikes in minimum wage go poof.
Perhaps recession is not just a done deal but it is long overdue.
Tourism is always a slaughter victim in recessions.

 

[playacaribe2]

Yes the peso should see some devaluation based on other factors but then recent hikes in minimum wage go poof.
Perhaps recession is not just a done deal but it is long overdue.
Tourism is always a slaughter victim in recessions.

Lots of balls in play here, both in and out of the DR.

Wage hikes do not necessarily cause inflation..................unless productivity stays stagnant or lags..........as was the the case in the recently released reports in the US.

Yes tourism would take a hit in any recession as people reign in their spending..............especially on non-essentials like travel. Lots of would be discretionary spending dollars are now being inflated away in the higher costs of food and fuel. Which will/could likely lead people to utilize their credit cards a little more to pay for items they used to be able to purchase without tapping those cc's.

And using those credit cards, as you pointed out, requires higher monthly minimum payments as CC costs to borrow also rise. It is a vicious circle/cycle if left unchecked.

Unfortunately, the only way, or so it seems, to engineer an economic soft landing is via a small/short recession to mop up the excess liquidity in most of the worldwide economies...................via rising interest rates. Those countries that do not raise their borrowing rates will see their currencies weaken, causing further imbalances in the global financial economy.

One thing different this time however is the high savings rate of people. This will provide some cushioning for at least a brief period of time.............and if the recession is short/shallow people will not be as affected as so many were in the last bout of inflation.

The balance of 2022 and into 2023 will be interesting times the world has not seen since the late 70's, early 80's.

Of note, tourism in the months of November/December exceeded pre-pandemic numbers. Jan-March 2022 however, fell short of pre-pandemic numbers and it appears that the days of returning to ever increasing annual tourist arrivals.................is still sometime in the future.


Respectfully,
Playacaribe2

 

[chico bill]

I am watching my spending. It isn't easy. Less meat for the dogs, I feed 11 if them.
Today I bought powdered laundry detergent. The cheapest brand.
I'm not eating breakfast out except one day per week.
Less trips to Bon for ice cream.
Much less driving. Trying to limit myself to 2 fill ups per month.
But I'm a single guy and I'm not good at cooking so like a couple or a single woman I can't save as much on food.
I save by occasionally buying Chef Boyardee ravioli in a can - that sure isn't gourmet dining. My meals out are in more frugal establishments.

By 2023 I might be down to beans and rice.

 

[JD Jones]

I am watching my spending. It isn't easy. Less meat for the dogs, I feed 11 if them.
Today I bought powdered laundry detergent. The cheapest brand.
I'm not eating breakfast out except one day per week.
Less trips to Bon for ice cream.
Much less driving. Trying to limit myself to 2 fill ups per month.
But I'm a single guy and I'm not good at cooking so like a couple or a single woman I can't save as much on food.
I save by occasionally buying Chef Boyardee ravioli in a can - that sure isn't gourmet dining. My meals out are in more frugal establishments.

By 2023 I might be down to beans and rice.

Buy the roast chicken at Jumbo or Sirena. I easily get 4 lunches or dinners out of one of them. Buy lettuce and tomatos and make small salads. A chicken on whole wheat is pretty good.

Nothing in a can is cheaper or good for you.

 

[chico bill]

Buy the roast chicken at Jumbo or Sirena. I easily get 4 lunches or dinners out of one of them. Buy lettuce and tomatos and make small salads. A chicken on whole wheat is pretty good.

Nothing in a can is cheaper or good for you.

My senior dog gets the roasted chicken - he doesn't have too much time left.

 

[beeza]

I'm noticing the pain already. We used to do a monthly grocery shop with weekly top-ups on perishables. The monthly shop would be 13-15k pesos with a weekly top up of around 3-4k. This is for a family of four.

Our last weekly top-up was very basic. Just fresh fruit, veg, bread, meat and dairy. No booze or expensive extras, the bill was 8k!

Our monthly grocery budget has increased significantly these last few months.

And then those little jobs around the house, hardware and building supplies have gone through the roof. I bought 100 feet of electrical wire at my local ferreteria today, 5k! This is becoming an expensive country to live in.

 

[Ecoman1949]

Did some checking on flights for the fall. Toronto-POP return. Prices up a lot. What I used to get for $500-$600 now $800-$1000. Car rental is way up. Budget subcompact at POP airport rental I used to get for $300 a week including insurance now double the cost.

The average Canada-DR snowbird is being hit hard in Canada right now. Gas is $2.17 a litre in some places. That’s close to $10 a gallon and predicted to go much higher once summer starts. The average Canadian who takes maybe one or two AI trips to the DR is going to have second thoughts about doing the same next winter. I’m hoping Corporate greed will come back to bite the corporations in the ass and prices drop prior to the start of the snowbird season. A recession is not far off if inflation continues on the same track.

 

[chico bill]

Did some checking on flights for the fall. Toronto-POP return. Prices up a lot. What I used to get for $500-$600 now $800-$1000. Car rental is way up. Budget subcompact at POP airport rental I used to get for $300 a week including insurance now double the cost.

The average Canada-DR snowbird is being hit hard in Canada right now. Gas is $2.17 a litre in some places. That’s close to $10 a gallon and predicted to go much higher once summer starts. The average Canadian who takes maybe one or two AI trips to the DR is going to have second thoughts about doing the same next winter. I’m hoping Corporate greed will come back to bite the corporations in the ass and prices drop prior to the start of the snowbird season. A recession is not far off if inflation continues on the same track.

I don't think it is corporate greed, although that could be a small component.

When diesel is over $5.50 a gallon in the US, $6.41 in Canada and even higher in Europe.
Ships move on diesel, trucks move on diesel and all heavy construction machinery runs on diesel. And diesel is projected to go up another 20% by summer. Almost everything in DR is affected by higher fuel prices. Refining costs have gone up

Got a notice from EncargoPaq today that they are raising their price per pound to ship products to DR
When you wage war on fossil fuels they naturally get more expensive.
You can't get from A to C without going through B - They are killing people now in order to save them from "Climate Change" 100 year from now.

 

[JD Jones]

For you smokers and drinkers - never a better time to stop and enjoy the savings.

 

[chico bill]

For you smokers and drinkers - never a better time to stop and enjoy the savings.

Where are the savings?
Question - Are smokers allowed to complain about pollution?

 

[JD Jones]

Where are the savings?
Question - Are smokers allowed to complain about pollution?

I used to be a 4 packs a day kind of guy, and could drink just about anyone under the table. (Owned a bar for many years)

Do the math.

BTW, if you like seafood - buy a VIGO or Goya's Paella dinner kits. Super simple to prepare and tastes great.

Get the big one, add a little extra brown rice and water and you'll have enough to last a week.

 

[rubio_higuey]

I bought 100 feet of electrical wire at my local ferreteria today, 5k!

Was it 500 feet? There is no way 100 feet would cost 5,000 pesos @ 50 pesos a ft. Maybe the thick triple wire, but not a regular "alambre 12" or even a stronger "alambre 10" would cost that. I am checking some online prices and they go for about 12 pesos a ft Alambre 12 and about 20 pesos a ft Alambre 10. But a local ferreteria would have lower prices than that,

 

[NALs]

Did some checking on flights for the fall. Toronto-POP return. Prices up a lot. What I used to get for $500-$600 now $800-$1000. Car rental is way up. Budget subcompact at POP airport rental I used to get for $300 a week including insurance now double the cost.

The average Canada-DR snowbird is being hit hard in Canada right now. Gas is $2.17 a litre in some places. That’s close to $10 a gallon and predicted to go much higher once summer starts. The average Canadian who takes maybe one or two AI trips to the DR is going to have second thoughts about doing the same next winter. I’m hoping Corporate greed will come back to bite the corporations in the ass and prices drop prior to the start of the snowbird season. A recession is not far off if inflation continues on the same track.

A little over a month ago I went to Orlando, Fl and rented a car (they put me in a Kia Rio, which I must say I was impressed since I was expecting it to be much worse since its a Kia) and for four days the bill was over US$500. To be fair though, I wasn't putting attention how much everything was until I got the credit card bill a few weeks later. What a surprise. lol And that was with Budget from the Orlando Airport.

Given that, I can't say I'm surprised with what "Budget" is charging at POP.

 

[beeza]

Was it 500 feet? There is no way 100 feet would cost 5,000 pesos @ 50 pesos a ft. Maybe the thick triple wire, but not a regular "alambre 12" or even a stronger "alambre 10" would cost that. I am checking some online prices and they go for about 12 pesos a ft Alambre 12 and about 20 pesos a ft Alambre 10. But a local ferreteria would have lower prices than that,

Yes it was fat wire. AWG 6. I'm installing an on-demand 15KW water heater to replace the immersion tank. Let's hope it does what it says on the box and reduces my electricity bill. I think hot water is my highest electricity consumption and every little helps to keep household costs down.

Next investment would be a solar water heater on the roof. But not just yet. I got this heater off Amazon and was fairly cheap, less than $200.