Dominican Republic: Inflation falls in August, Central Bank leaves rates on hold and adopts a more dovish stance
September 13, 2018
Consumer prices rose 0.03% in August over the previous month, contrasting July’s 0.02% fall. According to the Central Bank, August’s slight uptick was driven by higher prices for education, transport and housing, which were largely offset by lower prices for food and non-alcoholic beverages.
Inflation declined from 4.4% in July to 3.9% in August, moving slightly below the midpoint of 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, came in at 2.6%.
At its 28 September monetary policy meeting, the Central Bank kept its main policy rate at 5.50%, after hiking rates for the first time in a year in July. The Bank’s decision came in the context of a moderating price pressures in recent months, and subdued core inflation. Moreover, international reserves have risen notably since June, supported by currency inflows from tourism, FDI, remittances and good exports. This has lessened the pressure on the Bank to continue tightening its stance.
The communiqué was markedly less hawkish than in the previous meeting, when the Bank explicitly stated it was prepared to continue increasing rates in response to tighter U.S. monetary policy. In September, the Bank readopted a neutral bias, stating it would closely monitor international and domestic developments going forward to ensure price stability.
Author: Oliver Reynolds, Economist