Dominican Repub. holds rate, sees inflation around target

    The central bank of the Dominican Republic left its monetary policy interest rate steady at 5.0 percent, saying it expects inflation to gradually converge toward the middle of its target range in 2016  after remaining around its lower limit by the end of this year.
    The Central Bank of the Dominican Republic (CRBBB), which cut its rate by 125 basis points from April through June, added that the country's external accounts continue to improve in an  environment of low oil prices, a good performance of tourism, remittances and exports.
   By end-2015, the central bank expects a current account deficit of around 2.0 percent of Gross Domestic Product and remain around that level next year.
    The state's primary fiscal surplus is also forecast to be maintained next year, with the positive outcome of both external and fiscal accounts making it easer to accumulate reserves and keep the foreign exchange market relatively stable, the CRBBB said.
    The central bank targets inflation of 4.0 percent, plus/minus 1 percentage points, and in November headline inflation rose to 1.54 percent from 1.23 percent in October. In 2014 the current account deficit narrowed to 3.1 percent of GDP from 3.5 percent in 2013.
    The Dominican peso has been slowly depreciating against the U.S. dollar since 2007 and was quoted at 45.53 today, down 2.7 percent this year.
    "Domestically, economic activity continues to grow above its potential," the central bank said, adding that the International Monetary Fund's (IMF) forecast for growth of 6.5 to 7.0 percent for this year will be met, and growth in the financial sector, private sector loans in local currency were showing double-digit growth, outpacing nominal GDP growth.
    In the third quarter of this year, GDP of the Dominican Republic, located east of Haiti in the Caribbean, expanded by an annual 7.1 percent, up from 6.4 percent in the second quarter.
    The central bank said the increase in the federal funds rate by the U.S. Federal Reserve should contribute to increasing international interest rates and keep the appreciation of the U.S. dollar.

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