Dominican Republic Central Bank Statement

Author: | Published: 19 Oct 2018
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The Dominican economy grew 4.6% in 2017, showing resilience after having experienced a cyclical downturn in investment in the second quarter of the year and having been affected by the passage of two hurricanes in September 2017. The Dominican economy, after having grown 5.5% in the first quarter of 2017, showed a significant downturn, growing only 3.1% in the second quarter, due to the decrease in public and private investment.

To this end, the Central Bank adopted a set of monetary stimulus measures that included cutting the monetary policy rate by 25 basis points to 5.25% and reducing the legal reserve ratio by 2.2 percentage points to 12.1%, which implied the release of about DOP23 billion (approximately $460 million). In the same way, these measures were accompanied by a normalisation of public spending according to the budget, which improved expectations in the private sector.

As a result of these actions, production grew by 6.5% in the last quarter of 2017. Aggregate demand was driven by the 11.9% growth in investment, an expansion of 6.4% in exports and of 5.5% in final consumption. In the same way, the loan portfolio of the consolidated financial sector increased by 8.8%.

The annual inflation rate was 4.2%, around the goal of 4.0% ± 1.0%, influenced by the dissipation of the positive shock of supply that had represented the relatively low price of oil in recent years.

The results of the balance of payments showed a decline in the current account deficit for the sixth consecutive year, going from -1.4% of GDP at the end of 2016 to -0.2% of GDP in 2017. This result is mainly explained by the sustained increase in income from tourism, as well as the significant increase in family remittances. Total exports showed a year-on-year increase of 2.9%, while imports grew by 1.7% in that period.

Net foreign direct investment amounted to $3.57 billion, for a significant growth of 48.3% compared to 2016, driven mainly by higher flows in the commercial, tourism and real estate sectors.

As of December 2017, gross international reserves amounted to $6.780.8 billion, equivalent to 4.3 months of imports, while net international reserves amounted to $6.780.4 million, this being an historic high.

Preliminarily, in 2017 Central Government operations showed a deficit of 3% of GDP.

In 2017, the Dominican financial sector experienced a sustained expansion rate of its gross assets and liabilities, with annual increases of 8.8% and 8.4%, respectively, verifying at the same time adequate levels of profitability and quality of the loan portfolio.

For 2018, an economic growth of around 6.0% is expected, driven by private consumption and investment. Inflation is expected around the centre of the target range of the monetary policy horizon. Additionally, a current account deficit of around 1.0% of GDP is estimated, considering the higher oil price, whilst an increase in international reserves is achieved.