The political scene – the expectations of the World Bank reassure the country

The agreement of the World Bank with the Central Bank that the Dominican Republic will be one of the few countries in Latin America that will achieve growth in its economy now and next year, is the reason for calm for the country.

In its latest Global Economic Prospects report, the World Bank lowered its growth forecast to nearly two dozen countries, but not so for the Middle East country, which got 5.0% for this year and next, and far from 2 and more for other countries in the region that The epidemic hit her.

The Dominican economy grew by 5.8% in the January-April 2022 period, well above its potential rate, the Central Bank of the Dominican Republic (BCRD) reported in its analysis. In the month of April recorded an increase of 4.7%? The World Bank warns that “as an exacerbating factor of the damage caused by the COVID-19 pandemic, the Russian invasion of Ukraine has exacerbated the slowdown in the global economy, ushering in what could become a prolonged period of low growth and high inflation.

The risk of an economic situation that has prevented many countries from growing is that it increases the risk of stagflation (a period of high inflation accompanied by economic stagnation) “with potentially severe consequences for middle and low income economies”.

The recovery will be key to growth for some Caribbean islands, which will reach 8.0, for the Bahamas, 8.5, for Barbados and Saint Vincent and the Grenadines, they will have 8.3% and Panama, 7.8, throughout this year. The forecast drops a few points for all countries in 2023.

BCRD Report
The central bank reported that the Dominican economy grew by 5.8% in the January-April 2022 period, well above its likely rate. In April, it recorded an annual increase of 4.7%. Growth in the first quarter of the year was 6.1%.

BCRD stresses that such positive outcomes underscore the resilience of the Dominican economy in the face of today’s prevailing international environment, characterized by recent geopolitical conflicts and global cost shock.

The state institution, more than any other entity, regularly informs the state, especially after the pandemic, of the steps the state is taking and the monthly indicator of economic activity with the acronym IMAE.

The International Monetary Fund (IMF) as well as the international risk rating agency Moody’s highlighted the good performance of the Dominican economy, reaffirming that the country’s outlook remains favourable. They expect gross domestic product (GDP) growth of around 5.0% in line with British Columbia’s forecasting system. When analyzing the performance of various sectors that affect the economy, the Central Bank sees hotels, bars and restaurants in the lead with 39.9%, while other service activities increased by 11.2% in the January-April period. It indicates that manufacturing free zones 8.2%, transportation and storage 8.2%, communications 7.6%, public administration 7.5%, health 7.4%, commerce 7.1%, financial services 6.5%, construction 4.6%, among others.

The arrival of 1,943,493 foreign visitors resulted in a relative variance of 39.9% during the first four months of the year, which equates to an annual growth of 181.2%, as well as an average occupancy rate of over 70%. The total number of visitors in April was 62,010, an all-time high.

It is clear that the campaign carried out by the Ministry of Tourism and Promotion Abroad and the good management of the COVID-19 epidemic have contributed to the indicated achievements, since during this period there was an occupancy rate of 70%.

Explain the price hike
The BCRD explains the reasons why central banks are raising their monetary policy rates, as they did recently by raising them from 5.50 to 6.50. Communications Director Luis Martin Gomez teaches about pricing.

He says that most central banks have price stability as their most important goal, so to achieve their goals, they use various tools, the most important of which is the monetary policy rate (MPR).

This rate, says a BCRD spokesperson, provides an indication of the type of policy a central bank is implementing and serves as a reference for interest rates in the financial system and capital market, and is a clear indicator of the cost of money.

The official presenter of the BCRD asks: “When should the central bank raise or lower the rates of monetary policy,” and explains that such decisions are related to the conditions that the economy is facing at a particular time.

It indicates that if the economy is facing inflationary pressures and experiencing high growth, then central banks increase rates to encourage savings and thus avoid rising economic activity, which helps to achieve a balance between demand for goods and services and national productive capacity.

If, as Lewis Martin says, the economy is in a state of low growth and the absence of inflationary pressures, the institution reduces the rate of monetary policy to promote the stimulation of consumption and investment through low interest rates, which encourages economic agents to choose to increase financing.

What is happening now as the world faces an inflationary shock from high oil prices, rising costs of many commodities and Russia’s war against Ukraine, is that pressure is created to raise interest rates.

He cites the US raising interest rates by 75 points, Canada by 125 and England by 90, to name only three cases. The expectation is that it can increase further. Given this situation, the Bank of British Columbia preemptively raised its monetary policy rate by 350 points, from 3.00 in December 2021 to 6.50 points today.

This was done to counter domestic inflation, while being careful not to cause a sudden drop in economic activity and employment.

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