Dominican Republic

Dominican Republic Monetary Policy January 2023

Dominican Republic: Central Bank stays put a third consecutive time in January

At its first meeting of the year on 31 January, the Central Bank of the Dominican Republic (BCRD) opted to leave the policy rate unchanged at 8.50%. The move marked the third consecutive hold since November, following a cumulative 550 basis points of hikes since November 2021.

The continued moderation of inflation drove the decision. The BCRD assessed that the previous hikes—which brought the policy rate into contractionary territory—and the government’s deployment of anti-inflation measures had gotten inflation under control. Both headline and core inflation moderated from their April and May 2022 peaks. The Bank stated that headline inflation is now expected to return within its 3.0–5.0% target band in 2023—instead of by the end of H1 2023 as it had expected in December.

With regards to activity, the economy expanded 4.9% overall in 2022, close to its potential, while the labor market strengthened. The Bank forecasts 4.5% growth for 2023, confirming slowing domestic activity, which supported the Bank’s decision to hold fire.

The BCRD did not provide hints on future policy moves in its communiqué. If inflation continues to moderate, it is likely that the Bank will not increase rates further. The BCRD concluded that it “reaffirms its commitment to conduct monetary policy towards achieving its inflation target and the proper functioning of the financial and payment systems”.

Most of our panelists expect the Bank to cut the policy rate later this year, and see the policy rate to end 2023 at 6.50%. The BCRD is expected to hold another policy meeting at the end of February.

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