The Central Bank of the Dominican Republic (BCRD) has increased the monetary policy interest rate by 100 basis points, or from 3.50% to 4.50%. The annual rate of the permanent liquidity expansion facility (1-day Repos) is increased from 4.00% to 5.00% and the rate of interest-bearing deposits (Overnight) from 3.00% to 4.00% per year. The decision regarding the reference rate for the monetary policy reference rate was made in December 2021.
The policy interest rate is set to influence the evolution of the main monetary variables in the economy (consumer prices, exchange rate, credit expansion).
The decision was reached after assessing the impact of Covid-19 on the world economy and the persistence of inflationary pressures of external origin. The Central Bank explained that price dynamics continue to be affected by more permanent supply shocks than expected, associated with higher prices of oil and other important raw materials for local production, as well as the increase in global freight costs due to the scarcity of containers and other distortions in supply chains.
In particular, the monthly variation of the consumer price index (CPI) in November 2021 was 1.08%, while cumulative inflation during the first 11 months of 2021 was 7.71%. Core inflation, which excludes the most volatile components, reached 6.63% year-on-year in November 2021, reflecting second round effects from higher production costs associated with external shocks.
The BCRD forecasts that year-on-year inflation (variation of the last 12 months), which is at 8.23% in November 2021, should gradually decline to the target range of 4% ± 1% during the second half of 2022. This is a reduction at a slower pace than originally expected.
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Central Bank
3 January 2022