Central Bank governor Hector Valdez Albizu has announced that the government would use its commercial bank, BanReservas to force a reduction in interest rates on credit cards. Credit card use is widespread in the Dominican Republic, but banks have benefited from some of the highest rates in the Americas. He said the plan is for BanReservas to offer interest rates no higher than 2.5% interest per month on unpaid balances. He said this would be done because the Central Bank cannot oblige banks to reduce their rates. Monthly interest charges of 7-8% are common in the Dominican Republic. He said that if the government bank announced these much lower rates, they would attract clients from other banks, forcing the other’s to offer equally attractive rates.
“We believe that we can lead one or two entities to compete, independently of the Central Bank carrying out a study to see how the price of credit in the DR can be lowered”, said the governor.
He announced that the Central Bank expects to end the year with a GDP growth of 7%, beyond the 6.5% projected by the International Monetary Fund in its most recent letter of intent. He also forecast that year-end inflation will stand at 8%, and in the worst case 8.4%, to reflect the rising price of petroleum. He said that accumulated inflation to November was 6.41%, and annualized inflation is 4.83%.
Regarding the Central Bank’s liquid reserves, Valdez Albizu pointed out that the commitment with the IMF was to increase reserves by US$200m to end the year in US$350m and 2006 at US$300m. Nevertheless, he said that reserves are now at US$840 million, and should reach US$850 million by the end of the year.
He pointed out that as of 12 December there were gross reserves of US$1.803 million, and these should increase to US$1.812 million, by the end of the year, which is 3.3 times the import level.
Meanwhile, the governmental Banco Nacional de Fomento de la Vivienda y la Produccion (BNV) announced it was dropping the interest rate on housing project loans to 13%.
Regarding the US dollar, he forecast that there would be sufficient receipts in dollar to push for the strengthening of the peso.