Bear Stearns research analyst Franco Uccelli writes about the Central Bank’s decision to increase interest rates paid on CDs sold to individual investors. These instruments will now pay rates ranging from 12% (for one-month paper) to 21% (for two-year paper), up from 9% to 18%, respectively. Uccelli originally believed the higher rates were prompted by an inability to roll over at prevailing rates massive amounts of CDs (US$1.1 billion worth) coming due this month. But official sources have stated that so far 98% of the CDs maturing in September and October have already been rolled over. The higher rates are motivated by the recent and abrupt depreciation of the Dominican peso – almost 5% during the past month and 11% during the past 60 days – and an effort by the Central Bank to keep local rates supportive of foreign exchange and market stability. The Central Bank warned potential speculators that the country is about to receive a sizeable influx of US dollars which officials believe will contribute to stabilizing the exchange rate. The government has already receive US$110 million worth of recent Inter-American Development Bank (IDB) and World Bank (WB) disbursements and is expecting over US$320 million in multilateral credits once the International Monetary Fund (IMF) Board signs the country’s revised economic program on 17 October 2005. Uccelli believes that the near-term increase of inflow of dollars will ease the pressure on the exchange rate and halt the depreciation of the peso, which was considered a little overvalued by many Dominicans when it was trading at 29 peso-per-dollar. Uccelli states that he continues to view the DR’s economic recovery as reasonable stable (albeit somewhat fragile), and the recent increase in rates may present more attractive entry points for investors interested in Dominican local instruments.