International finances services officials from Bank of America, Metlife, Wellington, Finisterre Capital, Allianz, Prudential, Baillie Gifford and HSBC met in person with Central Bank Governor on Monday, 22 August 2022.
Central Bank Governor Hector Valdez Albizu told the fund managers that the Dominican economy is on the right track. He said the monetary authorities are monitoring global and local financial conditions to take the necessary measures to achieve inflation targets and maintain macroeconomic stability.
The investment managers learned firsthand about the performance of the Dominican economy and the outlook from Central Governor Hector Valdez Albizu.
The Central Bank reports that Valdez Albizu shared an overview of the macroeconomic policies in place, the measures adopted to face the pandemic and economic crisis and consolidate growth. The current situation and prospects for different economic sectors in the country were reviewed.
The Dominican economy has maintained growth above its potential, registering an expansion of 5.6% in the January-June period after growing by 5.8% inter-annual during the month of June. The economic activity is driven mainly by the tourism, health, free zones, transportation, warehousing and commerce sectors. The open unemployment rate has declined from 8% in the first quarter of 2021 to 5.2% in the second quarter of 2022.
Forecasts are for 5.0%-5.5% year’s end economic growth, one of the highest in the region, in line with estimates of the IMF and World Bank.
Tourism sector has fully recovered, with more arrivals than in pre-pandemic 2019. Valdez Albizu explained the forecast is for a record seven million tourists by year’s end.
Remittances from the diaspora amounted to US$5.67 billion from January to July 2022. The cash flow is 16.5% more than during the same period in 2021.
The current account deficit is expected to be 3%-3.5% of the gross domestic product (GDP). The deficit is expected to be comfortably covered by foreign direct investment (FDI), which is projected at around US$4 billion for this year.
The dynamism of foreign exchange-generating activities has contributed to the relative stability of the exchange rate, with an accumulated appreciation of the currency of 7.7% as of 22 August 2022.
The Central Bank has had to buy hard currency to avoid an abrupt drop in the exchange rate that could affect foreign exchange generating sectors. The hard currency has strengthened the country’s international reserves.
“So far this year, international reserves have increased by more than US$1 billion and in August alone more than US$500 million have been purchased through the electronic foreign exchange platform,” explained the Central Bank governor.
Monetary policy and prices
Valdez Albizu expressed that “given this scenario of greater inflationary pressures, the BCRD began at the end of 2021 a process of normalization of monetary policy, reversing the expansionary stance implemented during the pandemic. The intention is to avoid risks of overheating of the economy, and a deterioration of the differential with respect to external interest rate.
The Central Bank has also gradually been increasing the monetary policy rate. This has gone from 3.00% in November 2021 to 7.75% per annum in August 2022. The increase is one of the lowest in Latin America.
The Central Bank explained that excess liquidity has been reduced through open market operations and the gradual return of resources that had been granted during the pandemic.
The inter-annual inflation has dropped from 9.64% in April 2022 to 9.43% in July 2022. Forecasts are for the downward trend to continue, until inflation reaches the target range of 4% +/-1% in the second half of 2023.
Present at the meeting were Alexander Muller, Lucas Martin, José Hernández Ortíz and Adam Sandelovsky for the Bank of America; José del Rosal for Metlife; Gabriel Tenorio for Wellington; Andy Fee for Finisterre; Alexander Robey for Allianz; Mindaugas Lepeska, for Baillie Gifford; Martin Soler for HSBC; Ning Sun for AIG; and Fernando Castro for Neuberger Berman.
Governor Valdez Albizu was accompanied by Deputy Governor Clarissa de la Rocha de Torres, Central Bank Manager Ervin Novas, Deputy Manager of Monetary, Exchange and Financial Policies Joel Tejeda, Deputy Manager of National Accounts Ramón González, Economic Advisor to the Governor’s Office Julio Andújar, director of Monetary Programming Joel González and director of the International Department Brenda Villanueva.
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Central Bank
24 August 2022