Dominican Republic: Inflation falls further in June; Central Bank announces fresh easing
July 30, 2019
Consumer prices fell 0.18% in June over the prior month, down from May’s 0.03% fall. According to the Central Bank, June’s decline was largely on the back of lower prices for housing and transport.
Inflation fell from 1.3% in May to 0.9% in June, moving further below the Central Bank’s inflation target range of 3.0%-5.0%. Core inflation—which excludes volatile items such as certain types of food, fuel and administered prices—was unchanged at 2.0%. Ebbing economic momentum and low oil prices compared to the same period last year have likely played a role in keeping inflation muted so far this year.
At its 30 July monetary policy meeting, the Central Bank (BCRD) cut the policy rate from 5.00% to 4.75%, following a 50 basis-point cut in June and liquidity injections to boost commercial bank lending. The Bank’s decision to further loosen its stance came as inflation remained below the target range for the eighth straight month in June, a situation the BCRD expects to continue until end-2019. Moreover, the Bank noted that the markets’ inflation expectations had fallen over the entire forecast horizon. In addition, the economy is losing puff, as highlighted by IMAE (economic activity) readings so far this year.
In its communiqué, the Bank maintained its dovish stance, highlighting it would be alert to “moderating global economic activity and uncertainty, and the possible impact on domestic demand”. This suggests further loosening is possible in the coming months, particularly if inflation remains limp and growth continues to decelerate.
Author: Oliver Reynolds, Economist