Dominican Rep. holds rate, inflation seen below target

    The Central Bank of the Dominican Republic (CBDR) left it monetary policy rate steady at 5.00 percent, saying forecast still show that inflation will remain below the lower limit of the bank's target for 2015 before converging to the center of the target range at the end of the forecast horizon.
    Inflation in the Dominican Republic rose to 0.62 percent in June from 0.23 percent in May and a 2015-low of minus 0.04 percent in April.
    The central bank targets inflation of 4.0 percent, plus/minus 1.0 percentage point. It has cut the rate by 125 basis points this year, most recently in May.
    Domestic production, demand and employment remains on track to expand along its expected path, the central bank said, adding the current account deficit is projected at 2.0 percent of Gross Domestic Product by the end of the year, helping the foreign exchange market remains stable and the accumulation of foreign exchange reserves, currently equal to 3.4 months of imports.
    In May the central bank's governor raised his forecast for economic growth this year to around 6 percent, up from the previous forecast of 5.0-5.5 percent.

   
    The Central Bank of the Dominican Republic issued the following statement:
   

"At its monetary policy meeting in July 2015, the Central Bank of the Dominican Republic (CBDR) decided to keep its interest rate monetary policy at 5.00% annually.

The decision on the benchmark rate was made after reviewing the country macroeconomic outlook, mainly the balance of risks around inflation projections and expectations of the private sector and relevant international environment for the Dominican economy. It was noted that the annual inflation rate in June rose to 0.62%. The accumulated inflation stood at 0.60% at the end of that month. Likewise, core inflation, monetary conditions related to the economy, stood at 2.32% in June yoy. Forecasts continue to indicate that inflation would remain below the lower limit of the target set in the monetary program for 2015, converging to the center of the range of 4.0% ± 1.0% at the monetary policy horizon.

In the external environment, according to Consensus Forecast is forecast growth of United States of America (USA) of 2.4% for 2015 and 2.8% for 2016. Under this premise, it is expected that the US Federal Reserve started its standardization process currency in the fourth quarter and inflation gradually converging toward the goal at the end of 2016, after reaching the goal of unemployment around 5.25%. In the case of the Eurozone, Consensus Forecast expects an expansion of output of 1.5% for 2015 and 1.8% in 2016. Although there is still uncertainty as to the outcome of the crisis in Greece, the effects on market volatility capital have tended to moderate. Projections for Latin America were revised downwards and suggest that the economy would not grow in 2015, increasing by around 1.5% in 2016. However, this projection is highly influenced by the deteriorating situation in Venezuela growth. If this country were excluded from the sample, Latin America would grow about 0.7% in 2015 and 2.0% in 2016.  

As for commodity prices, the correction in the stock markets of China, the second largest economy has been reflected in significant reductions accompanied by a trend appreciation of the dollar worldwide. In this context, the conservative estimates of the performance of the world economy in the medium term remain.

Domestically, domestic production, demand and employment expand as the expected path. The trend cycle monthly indicator of economic activity (IMAE) at end-May has an annual growth rate of around 6.1%, having been revised GDP growth in the first quarter from 6.5% to 6.6%. Also, credit to the private sector in domestic currency grew at an annual rate of around 11.5% in July. On the side of fiscal policy, public finances continue to show a surplus for the month of May, indicating that by the end of this year a primary surplus would be generated over the provisions of the National Budget 2015. The current level of public debt Consolidated is around 46.0% of GDP, below the regional average. Similarly, the external accounts are developing well, projecting a deficit of current account of the balance of payments at around 2.0% of GDP by year-end. This trend will benefit the relative stability of the exchange market and the accumulation of international reserves, which currently stand at around 3.4 months of imports.    

The CRBBB confirms its commitment to implement monetary policy aimed at achieving its inflation target, while also continue to monitor the evolution of the world economy and the domestic situation, to take the necessary measures to risks to price stability and the proper functioning of the financial and payment systems."

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