Dominican Republic holds rate, inflation heading to target

November 30, 2015

By CentralBankNews.info
    The Central Bank of the Dominican Republic (CBDR) left its policy rate unchanged at 5.0 percent,  saying that inflation was gradually converging toward the center of its target range of 4.0 percent, plus/minus 1 percentage points.
    The CBDR, which has cut its rate by 125 basis points this year, most recently in May, added that domestic economic activity was “progressing well in the short term,” and growth in Gross Domestic Product for this year was projected in the range of 6.5 to 7.0 percent, above the May forecast of around 6.0 percent.
    Last week the International Monetary Fund said the country’s growth momentum remains strong, with the economy projected to grow by 6.5-7.0 percent this year, propelled by domestic demand as employment recovers and external tailwinds boost disposable income.
    The IMF also said the central bank’s neutral policy stance is consistent with the objective of price stability but a tighter stance may be needed if stronger-than-anticipated inflation pressures emerge.
    The central bank said the country’s current account balance is expected to end the year at around 2.0 percent of GDP,  the lowest deficit in the last 10 years, and the primary fiscal surplus for 2016 is seen around 0.7 percent of GDP.
    “These positive results in the external and fiscal accounts would facilitate the accumulation of reserves and the relative stability of the exchange market,” the CBDR said.
    Inflation in the Dominican Republic rose to 1.23 percent in October from 0.39 percent in September while core inflation was 1.91 percent, the central bank said.
    GDP in the second quarter rose by 2.38 percent from the first quarter for annual growth of 6.2 percent, down from 6.6 percent in the first quarter.

    The Central Bank of the Dominican Republic issued the following statement:

“At its monetary policy meeting in November 2015, the Central Bank of the Dominican Republic (CBDR) decided to keep its interest rate monetary policy at 5.00% annually.
The decision on the benchmark rate was preceded by a comprehensive analysis of the macroeconomic outlook, including the balance of risks around inflation projections, market expectations and relevant international environment for the Dominican economy. It was noted that in October, annual inflation rose to 1.23% and, in cumulative terms, inflation rose to 2.08% that month. In addition, core inflation, which reflects the monetary conditions of the economy, stood at 1.91% yoy. End inflation around the lower limit of the target set in the monetary program for 2015, gradually converging toward the center of the range of 4.0% ± 1.0% in 2016.
In the external context, according to Consensus Forecast, the global economy would grow 2.6% in 2015, accelerating to 2.9% in 2016, driven by the performance of developed countries. United States of America (USA) would experience a growth rate of around 2.4% in 2015 and 2.6% in 2016, while the Euro Area (EA) would expand by 1.5% and 1.7% in those years, respectively. Inflation in the industrialized economies of Europe and the US remain near zero for 2015. By 2016, increase by about 1.7% in the US and 1.1% in the eurozone, in an environment of lower unemployment.
On another note, the outlook for major emerging economies remain lower, highlighting Brazil’s recession and the slowdown in the rest of net commodity-exporting economies in Latin America, projecting a contraction of -0.8% in 2015 and recovering gradually in 2016, with moderate growth of 0.2%. The Latin American economic outlook in 2015 is influenced by the estimated contraction of the economies of Brazil (-3.0%) and Venezuela (-8.0%) as well as by the low growth projected for Argentina (1.0%) and slower growth in other major exporters of commodities, such as Chile (2.1%) and Peru (2.8%).
For its part, China’s economy would grow 6.8% this year and 6.3% next year, below the average of the last decade, according to projections from the International Monetary Fund. In foreign exchange markets, the trend of appreciation of the US dollar remains as prices of commodities, particularly oil and gold, still below the average of recent years.
Domestically, economic activity is progressing well in the short term. The recent IMF mission evaluating national economic conditions, reiterated that the Dominican Republic is still among the most dynamic economies in the region. In that sense, the Gross Domestic Product (GDP) projected for 2015 envisages a real growth rate in the range 6.5% -7.0%. Consistent with nominal GDP growth, the private sector lending in local currency grow at an annual rate around 11.0% as of November.
On the external sector, the current account balance would close the year with the lowest deficit in the last ten years, around 2.0% of GDP, lower oil prices and the good performance of tourism revenues, remittances and export processing zones.Regarding fiscal policy, the projected primary surplus remains in the current year while for 2016 envisages a primary surplus around 0.7% of GDP. These positive results in the external and fiscal accounts, would facilitate the accumulation of reserves and the relative stability of the exchange market.
The Central Bank confirms its commitment to implement monetary policy aimed at achieving its inflation target, while also continue to monitor the evolution of the world economy and the domestic situation, to take the necessary measures against possible risks to stability Price and proper functioning of the financial and payment systems.”