Dominican Republic: Central Bank keeps rates steady in February, but provides extra financing to firms
February 28, 2021
At its end-February meeting, the Central Bank (BCRD) kept the policy rate at 3.00% for the sixth month running. However, a few days prior, the BCRD authorized an extra DOP 25 billion (USD 432 million, roughly 0.5% of 2019 GDP) in liquidity for firms, on top of the DOP 190 billion already agreed.
The decision to provide some additional stimulus was aimed at tiding over firms until domestic demand fully recovers. However, the cautious nature of the extra easing was likely influenced by the need to balance economic support to key sectors with controlling price pressures, given inflation has been persistently above the 3.0%–5.0% target in recent months.
In its communiqué, the BCRD maintained its neutral position and did not provide explicit guidance on the future direction of interest rates. It reiterated that it would continue to monitor the impact of the coronavirus pandemic on the economy, and that it was focused on meeting the inflation target. However, this month the Bank omitted reference to maintaining currency stability, suggesting concerns over the outlook for the peso have ebbed amid improving global risk sentiment. This implies the BCRD could be more willing to provide further monetary stimulus ahead if required. That said, the Consensus is for the policy rate to be slightly above its current level by end-2021.
Author: Oliver Reynolds, Economist