The Monetary Board of the Dominican Republic approved a significant monetary stimulus program on 1 June 2023. The program seeks to make available RD$94 billion to finance productive sectors and household consumption at low interest rates.
The measures are the follow up to the recent announcement by the Central Bank (BCRD) that it has begun reducing the monetary policy interest rate for the first time since 2021. The announcements are forthcoming after the Central Bank ascertained that inflation is again on the annual target of 4%±1% and the time is right to end the monetary tightening programs that sought to restrain inflation.
The new liquidity measures of the Monetary Board include the release of resources from the legal reserve for about RD$34 billion, equivalent to 2% of the liabilities subject to legal reserve. The money is for lending to productive sectors and households, through multiple banks, savings and loan associations and other financial intermediaries, at an interest rate of up to 9% per annum, with a four-year term.
It should be noted that this decision would allow financial intermediaries, especially savings and loan associations, to have more resources available for financing the acquisition of low-cost housing and its construction through interim loans.
Additionally, the Monetary Board ordered the creation of a new rapid liquidity facility (FLR) for RD$60,000 million, with the purpose of providing additional liquidity to the financial system and facilitating financing to the private sector, at an interest rate of no more than 9% per annum for two years. The Central Bank will grant these resources to the financial intermediation entities at an interest rate of 3% per annum, guaranteed with securities issued by the Central Bank and the Ministry of Hacienda.
These facilities would compensate for the return of the funds granted by the Central Bank during the Covid-19 pandemic. The Central Bank says that some RD$114 billion of these facilities have already entered the BCRD, contributing to a significant deceleration in the monetary aggregates.
The monetary stimulus program seeks to accelerate a decrease in market interest rates in the coming months and further stimulate economic activity. The BCRD’s forecast models indicate that even with these monetary stimulus measures, inflation would remain within the target range of 4%±1% over the monetary policy horizon.
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Central Bank
DR1 News
5 June 2023