Dominican Republic: Central Bank continues tightening cycle in June
At its 30 June meeting, the Central Bank of the Dominican Republic (BCRD) raised its policy rate by 75 basis points to 7.25%. The move again took market analysts by surprise, as a majority expected the Bank to hold fire at this meeting. June’s hike marked the sixth since November 2021, totaling 375 basis points.
The decision was driven by elevated price pressures due to the Russia-Ukraine war. Although inflation eased somewhat in May, it remained markedly high amid protracted supply disruptions and elevated oil prices. Similarly, in assessing its decision, the BCRD also aimed to avoid overheating the economy and to prevent capital outflows.
In addition, the decision to raise rates was further cemented by the economy’s strong performance, supported by looser Covid-19 curbs. A recovery in the tourism sector is well underway—with visitor arrivals nearing pre-pandemic levels through May. Activity in other sectors also remained upbeat.
In its communiqué, the Bank provided little in terms of forward-looking guidance. Echoing its previous statement in May, it again remarked that the economy had sound fundamentals that would enable it to withstand further shocks, potentially hinting at another rate hike at its upcoming meeting towards the end of July. Meanwhile, our panelists anticipate the policy rate to end the year twice as high as in 2021, before moderating in 2023.