What does this mean? I've been here seven years and the value of a peso has dropped from 37 pesos to a dollar to 48.1 and it looks like it's going to continue this trend. I am guessing that that price of products will continue to rise accordingly but I am curious to know if there are any other effects.... Thanks!
In the shorter term, what it means is that the Banco Central, to their credit, is getting out in front of a potential US fed rate raise next week. If you pull up a chart of USD/DOP you will see that just prior to the feds raising rates in March and June, the Banco Central slowly and orderly moved the peso down against the dollar.
As a broad general rule but not always, when a country increases its rates, it strengthens its currency i.e., it gets more expensive to buy USD in other countries, weakening theirs, particularly in LDC's (lesser developed countries). Reasons for rate raises vary from curbing inflation to attracting more foreign investment, etc.
Barring a black swan event in either country, like the DR banking crisis and recovery, the peso has been on a weakening trajectory from its days at parity 1:1 with the dollar to its current 48:1.
If interest rates in the US continue to rise, prices for goods in the DR will likely continue to slowly rise as the peso weakens, again barring any black swan event, or also if internally, the DR raises taxes as they did on ITBIS (VAT) from 16 to 18% for most goods.
This (currency devaluation) is also one of the many reasons why people who "invest" in peso certificates of deposit should be cautious.
Respectfully,
Playacaribe2