Dominican Republic: Central Bank restarts tightening cycle in May
May 31, 2022
At its 31 May meeting, the Central Bank of the Dominican Republic (BCRD) raised its policy rate by 100 basis points to 6.50%. The move surprised the majority of analysts, who expected the Bank to raise rates only later in the year. Furthermore, it marked the continuation of a paused tightening cycle—since November 2021, the Bank has raised the rate five consecutive times, totaling 300 basis points.
The BCRD’s vote to raise the main rate was driven by the economic repercussions from the war in Ukraine. Notably, the global uptick in price pressures, higher oil prices and longer-than-expected supply pressures have led domestic inflation to soar to a near one-year high in April.
Meanwhile, despite external headwinds, the economy has remained upbeat. The lifting of all restrictions in February has led to a swifter recovery in the tourism sector and, in turn, bolstered activity across multiple sectors. This, coupled with solid growth in remittances and exports through January–April, further cemented its decision to raise rates.
In its May communiqué, the BCRD stated that it “reaffirms its commitment to conduct monetary policy towards the achievement of its inflation target […] and will continue to monitor the international environment and inflationary pressures, with the purpose of adopting additional measures against factors that could pose risks to price stability”. Moreover, it noted that the economy currently has sound fundamentals to withstand further shocks, indicating that it is open to hiking further if needed.