Dominican Republic: Central Bank leaves rates unchanged in January
Bank makes first pause since August: At its meeting on 29 January, the Central Bank of the Dominican Republic (BCRD) left its policy rate at 5.75%. The decision came on the heels of 125 basis points of cumulative cuts since August.
More favorable economic backdrop at home partly prompts pause: The pause on further monetary policy loosening came on the back of within-target inflation, rising global economic uncertainty and expectations of higher-for-longer interest rates abroad. The BCRD also noted that liquidity in financial markets has increased significantly, that credit to the private sector continues to grow robustly, and that the Dominican economy is expected to grow 4.5–5.0% in 2025—one of the quickest paces in the region; these three developments gave the BCRD room to pause before cutting rates further.
Panelists pencil in cuts ahead: Once again, the BCRD did not give explicit forward guidance. The majority of our panelists expect 75 basis points of rate cuts this year, while a slim minority expects the Bank to either hold rates at current levels or to deliver more aggressive cuts. Upside risks to interest rates include unexpected commodity price spikes and a weaker-than-expected peso, which could be provoked by higher-than-expected interest rates in the U.S.
The Bank will reconvene on 26 February.
Panelist insight: EIU analysts commented on the outlook:
“We believe that the BCRD will continue to hold its policy rate at 5.75% until mid-2025, when it will resume easing, resulting in a terminal rate of 5% (below our estimated neutral rate of 6-7%). This forecast is based on our assumption that the BCRD will want to narrow the interest-rate differential with the US. […] The timing of the resumption of the easing cycle by the BCRD will reflect the renewed monetary-easing cycle in the US. A narrowing interest-rate gap will cause the peso will depreciate slightly to DOP 61.2 per USD by end-2025.”