The appreciation of the weight

The recent appreciation of the Dominican peso in relation to the dollar is the result of the restrictive monetary policy of the Central Bank by increasing the reference interest rate or MPR (monetary policy rate from 3.5% in December to 7.75% today).

In addition, intervening in the foreign exchange market with sterilization of the money supply by issuing bonds at high interest rates to take pesos out of the market and take pressure off the exchange rate; and also through the sale of international reserves on time.

This monetary policy is carried out to counteract the effects of inflation caused by the rise in the prices of oil and derivatives, food and international maritime transport, which have raised inflation to 9.6% as of August this year.

Monetary policy is also corrective of the expansion of money that was carried out during the pandemic to stimulate the economy. The appreciation of the peso has reduced the market price by up to 1.50 pesos per dollar, generating ambivalent effects on economic agents.

For consumers, it is beneficial because it removes upward pressure on imported goods, especially food and other basic industrial goods.

In this order, it also benefits the importing sector. For the government, it is important because it affects fuel prices less and saves on the tax subsidies that it currently makes.

It also takes pressure off the payment of interest on the external debt, which is paid in dollars.

All foreign exchange generators and those who receive remittances lose because it reduces the competitiveness of tourism, national exporters and free zones and harms families who receive dollars for consumption. In addition, the monetary policy of high interest rates to control the dollar market harms producers in the medium term, especially construction, commerce and industry.

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In short, it is a bittersweet situation, where there are winners and losers, as is always the case in any economic policy activity or decision.

 

 

—The author is president of the Dominican College of Economists (CODECO).

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