Dominican Republic: Central Bank slashes rates at emergency meeting in March and announces liquidity injections
March 19, 2020
At an emergency meeting on 16 March, the Central Bank (BCRD) cut a host of interest rates, with the main policy rate falling from 4.50% to 3.50%. The BCRD also announced a series of measures to boost liquidity and support the financial sector, which were swiftly amplified on 26 March and now stand at over USD 2.0 billion.
The rationale behind the marked easing of the monetary stance was the sudden deterioration in domestic and external economic conditions due to the Covid-19 pandemic. Moreover, domestic inflationary pressures are muted and could decline further in coming months on weaker economic activity and low oil prices, granting the BCRD leeway to cut rates. The combination of lower interest rates and extra credit to the financial sector should cushion the impact of the coronavirus going forward.
In its communiqué, the Bank adopted a dovish stance and appeared to leave the door open to further loosening, stating it would continue to monitor the economic impact of coronavirus and was “prepared and with sufficient policy space to react to factors which could cause inflation to miss the target or affect economic growth”. As such, further rate cuts are a possibility going forward.
Author: Oliver Reynolds, Economist