Dominican Republic: Central Bank cuts rates in August to support activity
August 31, 2020
At its end-August meeting, the Central Bank (BCRD) cut its policy rate from 3.50% to 3.00%, taking total easing this year to 150 basis points. The Bank also cut the one-day repo rate from 4.50% to 3.50%.
The decision was driven by a desire to support the economy. Economic activity plummeted in Q2, and according to the BCRD, preliminary data shows another sharp annual contraction in July. Moreover, while inflation has surged recently, the Bank judges this to be transitory, primarily linked to rising prices for some foodstuffs and the recovery in international oil markets. Coupled with the stabilization of the peso in recent weeks, this provided the BCRD with the space to ease its stance.
In its communiqué, the Bank adopted a neutral position and did not provide explicit guidance on the future direction of interest rates. It did however state that it would continue to monitor the impact of coronavirus on economic stability, and it was prepared to react if needed. As such, further rate cuts should not be ruled out if the economy remains downbeat, assuming currency stability is maintained.
Author: Oliver Reynolds, Economist