6.50 to 7.25% – high uncertainty forces the central bank to raise interest rates

Santo Domingo, d.

Today, the Central Bank announced an increase in the exchange rate monetary policy rate From 6.50% to 7.25%, an increase of 75 basis points.

The Monetary and Financial Authority stated in a statement that Permanent Liquidity Expansion Facility Rate (One-Day Repurchase Agreements) Increases from 7.00% to 7.75% per annum and the deposit rate with interest (overnight) from 6.00% to 6.75% per annum.

He explained that this decision is based on a comprehensive assessment of the recent behavior of the global economy and its impact on inflation, affected by geopolitical conflicts and the global cost shock.

It states that Price dynamics are still affected by external factors That was firmer than expected, which was linked to the unusually high prices of oil and other raw materials, as well as rising international container transportation costs and other disruptions in supply chains.

In addition, it indicates that these external components, Internal pressures have begun to appear in recent months To the extent that aggregate demand recovers significantly in relation to pre-pandemic levels and the rates of various services in the economy are adjusted.

Year-on-year inflation 9.47%
In particular, the monthly variance of the Consumer Price Index (CPI) stabilized at 0.49% during May 2022, while Inflation between the years, i.e. in the past 12 months, fell slightly to 9.47%.

The central bank details in its statement that core inflation on an annual basis, which excludes the most volatile components of the basket, reached 7.29% in May, reflecting the effects of the second round on production linked to supply shocks from abroad and internal pressures. of demand.

To help counter inflationary pressures, The central bank significantly reduced the excess liquidity of the financial system, Through open market operations and the gradual return of resources granted during the pandemic,” the bank says.

He added that these measures succeeded in accelerating the monetary policy transmission mechanism, which contributed to the adjustment of domestic interest rates and a significant moderation in the growth of monetary aggregates.

international environment
in the international environment, Uncertainty remains high due to the military confrontation between Russia and UkraineWhich led to the deterioration of the global economic outlook.

In this sense, global growth forecasts continue to be revised downward to 2.9% in 2022 according to consensus expectations, while international inflation expectations continue to increase.

in United States of Americaour main trading partner, growth eased to 3.5% year-over-year in the first quarter of 2022, which equates to a -1.6% quarter-on-quarter contraction.

That country’s annual inflation rate reached 8.6% in May, the highest in four decades And more than four times the 2.0% target for average inflation. In this context, the Federal Reserve (Fed) raised the reference rate by 75 basis points in June, accumulating a 150 basis point increase this year and indicating that it will make additional adjustments.

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