Dominican Republic Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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The Dominican economy grew 7.0% in 2018, maintaining an above-potential expansion and leading growth in Latin America. The dynamism of economic activity was mainly driven by private investment and consumption, in a context of favourable monetary conditions. In particular, interest rates remained stable, while private sector credit grew close to 11% year-on-year.

During the second semester of 2018, the monetary policy stance became more neutral, in consideration of oil price hikes and the prospects of an accelerated US monetary policy normalisation. Consequently, the Central Bank of the Dominican Republic decided to increase the monetary policy rate (MPR) from 5.25% to 5.50% per annum in July 2018.

Following the above-mentioned monetary policy measure, inflationary pressures slowed down as a result of lower food and beverage prices, as well as a significant decrease in oil prices in the last quarter of the year. In this context, inflation ended 2018 at 1.17%, below the lower limit of the target range of 4.0% ± 1.0%.

Additionally, macroeconomic stability and the dynamism of foreign exchange inflows, from sectors such as tourism, remittances and foreign direct investment, contributed to a current account deficit of 1.4% of the gross domestic product (GDP) in 2018, below its historical average. In particular, the Dominican economy received more than 6.5 million tourists, with tourism revenues of $7.56 billion. The strong performance of the external sector contributed to the relative stability of the exchange rate and the accumulation of international reserves, which reached $7.63 billion at the end of 2018, equivalent to 4.2 months of imports.

In addition, the consolidation of the public finances continued, as the non-financial public sector (NFPS) balance reached -2.7% of GDP. This has led to a significant reduction of the 'twin deficits', fiscal and current account, which reflects the strengthened macroeconomic fundamentals of the Dominican Republic.

The Dominican financial sector is solvent and presents adequate levels of capitalisation and liquidity. The total assets of the financial system increased 8% year-on-year in 2018, while the solvency ratio was above 17%. In addition, financial institutions on average registered a return on equity (ROE) ratio of 19.1% and a return on assets (ROA) of 2.3%, while the non-performing loans ratio was only 1.6% during 2018.

For 2019, the Central Bank projects that economic activity will grow at around 5.5%, gradually converging to its potential of 5.0% in 2020. Forecasts suggest that inflation would reach the lower limit of the target range of 4.0% ± 1.0% at the end of the year of 2019, approaching the centre of the target by 2020.