Dominican Republic: Central Bank keeps rates steady in October, but boosts liquidity provision
October 31, 2020
At its end-October meeting, the Central Bank kept the policy rate at 3.00% for the second month running, following a sizable rate cut in August. Total rate cuts this year stand at 150 basis points. However, earlier in the month the governor announced an additional DOP 40 billion (USD 685 million) in liquidity, on top of the DOP 190 billion already made available.
The decision to implement further easing via a liquidity injection rather than through rate cuts was likely driven by the desire to nurture the incipient recovery, while at the same time support the peso—which has lost close to 10% against the USD so far this year. Although inflation has risen markedly in recent months, reaching the upper bound of the Bank’s 3.0%–5.0% target range in September, the Central Bank judged this to transitory, with price pressures driven by drought and higher import prices. As such, the Bank felt there was still room to loosen its stance somewhat.
In its communiqué, the Bank 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 economic stability, and that it was focused on maintaining low inflation and a stable currency. Some panelists see further easing in the near term, although the Consensus is for rates to be slightly above their current level by end-2021. The next meeting is set for end-November.
Author: Oliver Reynolds, Economist