Dominican Republic: Central Bank raises rates in November
At its end-November meeting, the Central Bank of the Dominican Republic (BCRD) decided to raise the policy rate by 50bp to 3.50%. This follows its commitment made in August to unwind the extraordinary liquidity-boosting loan facilities that were introduced in response to the pandemic.
The decision was driven by inflation which was persistently above the Bank’s 3.0%–5.0% target range through October. The Bank thus judged that a rate rise was necessary for inflation to converge to its target band within the medium-run and to ensure agents’ inflation expectations remained anchored. Moreover, the economy is performing well, providing the BCRD with the leeway to tighten its stance.
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 ongoing supply bottlenecks that are “more-persistent-than-expected” according to the Bank, the Consensus is for further tightening next year.
Analysts at Ecoanalítica are bullish on further interest rate increases:
“The downward resistance of inflation seen in the Dominican Republic and the increase in this indicator among its peers in the region, in addition to an expansive fiscal policy, suggests that the Central Bank will act more quickly and aggressively in increasing interest rates. That is to say, we expect fresh rate rises in Q1 2022 given that the convergence of inflation to its target band will take some time.”