Dominican Republic

Dominican Republic Monetary Policy February 2022

Dominican Republic: Central Bank keeps rates steady in February

At its end-February meeting, the Central Bank of the Dominican Republic (BCRD) decided to keep its policy rate unchanged at 5.00%.

The decision came as a surprise to analysts, given persistently above-target inflation and the likelihood of additional upward pressure ahead arising from the Russian invasion of Ukraine, which has sent commodity prices soaring. Likely due to second-round effects, core inflation hit 7.0% in January—far above the Central Bank’s 3.0–5.0% target. This and an ensuing increase in inflation expectations was seen as likely to force the Bank’s to raise rates. Instead, the Bank decided to keep rates steady because it considered such price pressures to be primarily driven by external, transitory shocks. A recent slowdown in the growth of monetary aggregates also likely supported the Bank’s decision. The Bank sees inflation as eventually entering the target range within its forecast horizon.

In its communiqué, the BCRD did not provide explicit direction on future interest rate movements. That said, with the economy continuing to grow quickly and with external shocks to price pressures that are longer-lasting than the Bank initially expected—with the recent spiral in energy prices set to add further fuel to the inflationary fire—tightening is likely this year, despite this month’s decision to stand pat.

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