Dominican Republic: Central Bank keeps rates steady in June
June 30, 2021
At its end-June meeting, the Central Bank (BCRD) decided to keep the policy rate at 3.00%.
Despite inflation remaining above the BCRD’s 3.0%–5.0% target range for the seventh straight month in May, the Bank continued to judge that inflation would gradually trend down towards the target from June onwards. Together with well-anchored inflation expectations and a relatively stable currency, this gave the Bank the space to keep its stance accommodative in order to support the economic recovery.
In its communiqué, the Bank maintained its neutral forward guidance and did not provide explicit direction on future interest rate movements. That said, the Bank was more upbeat on the outlook for the economy, upgrading its GDP growth forecast for this year to 8.0%–9.0%. With domestic economic prospects increasingly bright, the Consensus is for rates to rise somewhat by year-end as the BCRD looks to contain price pressures.
Analysts at JPMorgan are among those seeing monetary tightening by year-end, stating:
“The transition towards a restrictive stance from the BCRD is taking longer than expected at the risk of de-anchoring expectations or even facing unsettled financial conditions once tapering nears. The Central Bank continues to see current price pressures as transitory […] but we still believe overheating risks and global financial challenges will convince policymakers that preemptive actions are of the essence. We see rates at 5% by the end of the year.”
Author: Oliver Reynolds, Economist