Dominican Republic: Central Bank keeps rates unchanged in May amid weakening peso
At its end-May meeting, the Central Bank (BCRD) left its monetary stance unchanged for the second straight meeting, after substantial easing in March to combat the Covid-19 fallout.
The BCRD’s decision to stay put, despite weak price pressures and contracting activity, was likely driven partly by the desire to evaluate the effectiveness of March’s easing measures, which are still being implemented. As the Bank stated, of the DOP 120 billion in liquidity provided to financial institutions, only slightly over half had been allocated by end-May. Moreover, the peso has weakened markedly so far this year, and a further rate cut could have exacerbated pressure on the currency.
In its communiqué, the Bank did not provide explicit guidance on the future direction of interest rates, but stated it would continue to monitor the impact of coronavirus on growth and inflation, and was prepared to react if needed. As such, further rate cuts should not be ruled out if the economy remains in a prolonged downturn, although a stabilization of the currency could be a prerequisite for easing.