Santo Domingo.- The Central Bank of the Dominican Republic (BCRD) has reduced its monetary policy interest rate (TPM) from 8.00% to 7.75% per year during its June 2023 monetary policy meeting. This decision also affects other interest rates within the financial system. The rate of the permanent liquidity expansion facility (1-day Repos) is reduced from 8.50% to 8.25% per year, while the rate of interest-bearing deposits (Overnight) is reduced from 7.50% to 6.75% per year.
These actions aim to lower the financing costs of financial institutions and, subsequently, lead to lower interest rates throughout the financial system. The decision was influenced by various factors, including the reduction in domestic inflation, which has remained within its target range of 4.0% ± 1.0%. This has been achieved through monetary and fiscal policies, as well as reduced domestic demand and lower global prices for raw materials.
The statement from the Central Bank indicates that the monthly variation of the consumer price index (CPI) in May was -0.20%, contributing to a significant drop in year-on-year inflation from 9.64% in April 2022 to 4.43% in May 2023. Core inflation, which excludes the volatile components of the CPI basket, also decreased from 7.29% to 5.51% during the same period.
As a result of this successful control of inflation and its convergence to the target range ahead of schedule, the Central Bank began to normalize its monetary policy stance. The combined reduction of 75 basis points in the TPM during May and June, along with additional liquidity provision measures, are intended to facilitate favorable financing conditions for both households and the productive sector. This promotes economic growth and maintains inflation within the target range.
