Dominican Republic: Inflation ticks up in April, Central Bank leaves rates unchanged but announces liquidity injection
June 2, 2019
Consumer prices rose 0.53% in April over the prior month, down slightly from March’s 0.65% increase. According to the Central Bank, April’s increase was largely on the back of higher food and transport costs, with the latter driven by government-mandated fuel price increases.
Inflation rose from 1.5% in March to 1.6% in April, but remained below the Central Bank’s inflation target range of 3.0%-5.0% for the sixth straight month. Core inflation—which excludes volatile items such as certain types of food, fuel and administered prices—dipped from 2.2% to 2.1%.
At its 31 May monetary policy meeting, the Central Bank (BCRD) kept its policy rate at 5.50%. The decision to stay put came despite low price pressures—which led the Bank to state that inflation will likely stay below 3% until end-2019—and rising international uncertainty. The BCRD maintained that inflation will rise back to the center of the target range in 2020, while economic activity is robust despite decelerating in Q1; as a result, the Bank saw no need for a rate cut at the current juncture. That said, earlier in May the Bank announced that DOP 29 billion (roughly USD 570 million) would be made available to financial institutions to support credit provision, suggesting the Bank is sensitive to the impact the more adverse global trading environment could have on the economy.
In its communiqué, the Bank adopted a more dovish stance, and highlighted it would be alert to “moderating global economic activity and international uncertainty, and the possible impact on domestic demand”. This suggests that a rate cut could be on the cards in the coming months.
Author: Oliver Reynolds, Economist