The Central Bank of the Dominican Republic (BCRD) announced an increase in the interest rate on its monetary policy by 50 basis points, from 7.25% to 7.75% annually.
thus, The rate of the perpetual liquidity expansion facility (one-day repurchase agreements) increased from 7.75% to 8.25% per annum The overnight deposit rate is from 6.75% to 7.25% per annum.
“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,” read part of a statement from the entity.
Likewise, they noted that price dynamics continues to be affected by “more stable than expected” external factors, linked to higher oil and other raw materials prices, as well as higher international container transportation costs and other disruptions. in supply chains.
In addition, they emphasized that domestic inflation has been affected by the effects of the second round of these external components, to the extent that aggregate demand has recovered significantly in relation to pre-pandemic levels.
They cited in particular the monthly change of the CPI, which amounted to 0.64% during June 2022, while inflation in the past 12 months was 9.48%, moderate relative to its highest level reached in 2022 from 2022. 9.64% in April.
Similarly, inflation, which excludes the most volatile components of the basket, is beginning to show signs of moderation, moving from 7.25% in May to 7.11% in June.
“At the end of 2021, the central bank began the process of monetary normalization by increasing the rate of its monetary policy And reducing the excess liquidity in the financial system, with the aim of facing inflationary pressures, and avoiding the risks of overheating the economy, as well as the deterioration of the spread with regard to external interest rates,” the Bahrain Social Development Bank explained.
After these measures, according to the bank, there was a significant increase in the negative interest rate, while the increase in the active interest rate was more gradual, remaining below pre-pandemic levels.
Likewise, a significant moderation in the growth of monetary aggregates has been verified.
Likewise, these measures have reversed the expansionary monetary stance adopted during the pandemic, which will facilitate a gradual convergence of inflation to the target range of 4% ± 1% on the monetary policy horizon.
In the international environment, uncertainty remains high due to the war between Russia and Ukraine, which has deteriorated the global economic outlook.
In this sense, the International Monetary Fund has once again, in its latest World Economic Outlook, revised global growth forecasts for the current year 2022, from 3.6% to 3.2%, as it continues to increase international inflation. expectations.
In the United States, our main trading partner, growth slowed to 1.6% year-over-year in the second quarter of 2022, which equates to a 0.9% quarter-on-quarter contraction.
In this scenario, the International Monetary Fund has revised the growth forecast for the US economy to 2.3% for this year.
On the other hand, that country’s annual inflation rate was 9.1% in June, four times higher than the 2.0% target.
In this context, the Federal Reserve raised the reference rate by 75 basis points in July, to collect a 225 basis points increase this year, while noting that it will make additional adjustments in the remainder of 2022.
As for the eurozone, growth forecasts have also been revised downward, with a 2.6% expansion expected in 2022 according to the International Monetary Fund; While year-on-year inflation continues to rise to 8.9% in July, the highest rate in the history of this bloc of countries.
In this context, the European Central Bank raised its monetary policy rate by 50 basis points and announced that it considers it appropriate to make additional increases in the coming months.
They also reported that in Latin America, “nearly all central banks in the region” have accumulated significant increases in their reference rates since 2021 to counteract high levels of inflation.
Among the cases mentioned are Argentina (2,200 bp), Brazil (1,125 bp), Chile (925 bp), Paraguay (725 bp), Colombia (725 bp), Costa Rica (675 bp), Peru (575 bp) and Uruguay (525 bp). Mexico (350 basis points), Nicaragua (150 basis points), and Guatemala (50 basis points).
In terms of raw materials, the price of a barrel of Texas Intermediate (WTI) oil has recorded significant increases in recent months, rising from an average of $83 during January 2022 to nearly $100 a barrel during July.
Meanwhile, international prices of primary food commodities, such as corn, wheat, sorghum and soybeans, remain high due to the aforementioned armed conflict between the two major producers of these “commodities” in the world.
However, there has been a decline in the prices of major raw materials in recent weeks due to moderation in global demand and improvements in the production and distribution of these commodities.
In the domestic environment, the Dominican economy maintains a high dynamism, as it recorded an annual growth of 5.8% during June of this year, which allowed the cumulative expansion during the first half of 2022 to stand at 5.6%. , beyond his capabilities.
They stressed that “the positive development of economic activity contributed to a significant improvement in the labor market.”
Despite the complex international scenario, forecast models indicate economic growth by the end of 2022 at around 5.0%, which is one of the highest expansions between emerging economies and the region, in line with what international organizations such as the International Monetary Fund indicate. and the World Bank.
As a reflection of rising domestic demand, the national currency’s credit growth accelerated, expanding year-on-year by about 13.5% at the end of July, in line with the expansion of nominal GDP.
This credit dynamism is primarily driven by agricultural sector financing, consumption, small business, home buying, and construction.
In terms of fiscal policy, the higher groups stand out in relation to what was estimated, which gave the necessary space for the application of subsidies and other measures aimed at mitigating the impact of rising international prices for raw materials on national production and households, especially the most vulnerable. .
In the external sector, the Bahrain Sustainable Development Bank reported that the positive behavior of exports and tourism continues; As well as remittances that exceeded $4.8 billion during the first half of the year.
The positive development of foreign exchange generating activities has enhanced the relative stability of the exchange rate, which was reflected in the appreciation of the local currency by about 5.0% at the end of July, which helps offset the impact of the imported component on prices, therefore, to the gradual convergence of inflation with the target.
Similarly, international reserves were boosted to about US$14.2 billion, equivalent to about 13.0% of GDP and about six months of imports, exceeding the measures recommended by the International Monetary Fund.
“It is important to emphasize that the Dominican economy is in a good position to mitigate this adverse shock, given the strength of macroeconomic fundamentals, the resilience of productive sectors, and the high levels of international reserves,” the central bank noted. .