The Central Bank (BCRD) kept its interest rate monetary policy (TPM) at 8.50% per year, the rate of the permanent liquidity expansion facility (1-day Repos) remains at 9.00% per year and the rate of interest-bearing deposits (Overnight) continues at 8.00% per year, due to an exhaustive evaluation of the recent behavior of the economy, especially of inflation.
This decision was adopted at the January meeting of the Monetary Board.
The BCRD says that the prices of most raw materials, particularly oil, have moderatedwhile reducing the overall costs of the container transport.
At the domestic level
It indicates that the inflationary dynamics have responded to the monetary restriction program and the subsidies implemented by the Government. However, in December some agricultural products with a high incidence in the basket were affected by adverse weather conditions, causing monthly inflation for December to reach 0.96%.
Year-on-year inflation has fallen by about 181 basis points from a maximum of 9.64% in April 2022 to 7.83% at the end of the year.
Meanwhile, core inflation, which excludes the most volatile components of the basket, has decreased from 7.29% in May to 6.56% in December 2022.
“It is important to highlight that subjacent inflation is one of the main indicators in the decision-making of central banks and that its recent dynamics reflect the effectiveness of the economic policies adopted to counteract inflationary pressures”, it indicates.
In this regard, the BCRD explains that it has increased its monetary policy rate (TPM) in 550 basis points from November 2021.
The opportune monetary reaction has facilitated a significant increase in the nominal interbank interest rate and a sustained decrease in inflation expectations, causing the real interbank rate to be more than four percentage points above its estimated neutral level, which contributes to mitigate the pressures of internal demand, he adds.
Behavior in the region
In Latin Americaalmost all central banks have increased their monetary policy rates, placing them significantly above pre-pandemic levels, as is the case of Argentina (reference rate at 75.00%), Brazil (13.75%), Colombia (12.75 %), Uruguay (11.50%), Chile (11.25%), Mexico (10.50%), Costa Rica (9.00%), Paraguay (8.50%), Dominican Republic (8.50%), Peru (7.75%), Nicaragua (7.00 %) and Guatemala (4.25%).
As a result of these measures, regional inflation has begun to subside in recent months, which is why most central banks have paused in the cycles of MPR increases, while the rest moderate the increases in their interest rates. reference.
Economy closed at 4.9%
in the domestic environmenteconomic activity expanded by 4.9% year-on-year during 2022, close to its potential, contributing to the strengthening of the labor market. Indeed, at the end of 2022 the number of employed exceeded the level prior to the pandemic, while the open unemployment rate fell from a maximum of 8.0% in the first quarter of 2021 to 4.8% in the last quarter of 2022. This year, the BCRD forecast system indicates that the Dominican economy would grow around 4.5% in 2023, remaining one of the fastest growing countries in the region according to international organizations such as the IMF and the World Bank.
money in the hands of the public
In addition, the expansion rate of monetary aggregates has slowed down, especially that of the circulating medium (M1), which has gone from a maximum of 30% during 2021 to 10.2% at the end of 2022, below the expansion of domestic product. gross (GDP) nominal.
Likewise, private credit in national currency begins to show signs of moderation, going from year-on-year growth rates close to 15% at the end of 2022 to an expansion of around 13.5% in January 2023.
In addition, there is an increase in commercial bank interest rates, mainly in the deposit rate. In this way, a favorable rate differential has been maintained with respect to the main trading partners, such as the United States of America, contributing to greater capital flows and foreign investment to the country, in addition to encouraging savings in national currency.
Under current forecasts, it is estimated that the MPR is at an adequate level for inflation to converge to the target range of 4% ± 1% during 2023, as the monetary policy transmission mechanism continues to operate and the shocks dissipate. temporary factors that have affected the volatile component of prices, mainly the effects of weather events.
The International Monetary Fund (IMF) has revised slightly upward the growth prospects of the world economy for the year 2023 to 2.9%, although it would be less than the expansion of 3.4% in 2022; while global inflationary pressures will continue to moderate as lower prices of “commodities” are projected during this year.
In the US, growth was 2.1% in 2022 and is expected to moderate to 1.4% in 2023. On the other hand, inflation in that country has slowed, going from 9.1% in June to 6.5% in December, although it remains above its target of 2.0%.
In this context, the Federal Reserve (Fed) has begun to moderate the magnitude of the increases in its TPM, accumulating an increase of 425 basis points during the year 2022.
Analysts expect the Fed to make additional interest rate hikes to complete its restrictive monetary cycle during the first half of 2023, as inflation continues to converge toward its target, which is scheduled for 2024. Eurozone (ZE), economic conditions continue to be affected by the war between Russia and Ukraine, registering an expansion of 3.5% in 2022 and projecting a growth of just 0.7% for 2023.
Year-on-year inflation remains high, standing at 9.2% in December. In this context, the European Central Bank increased its MPR by 250 basis points during 2022 and announced additional increases for 2023.
On foreign exchange generating activities (tourism, national exports and free zones, remittances and foreign direct investment) they have maintained a positive performance, contributing to an appreciation of the Dominican peso of around 2.0% in 2022. This behavior of the external sector has facilitated the strengthening of international reserves, which are located around US$ 14.5 billion, equivalent to 12% of GDP and almost six months of imports, exceeding the metrics recommended by the IMF.