Dominican economy continues to grow, Central Bank confirms

Santo Domingo.– Dominican Republic’s Central Bank left its monetary policy interest rate steady at 5.0 percent, and said 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 financial institution, 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 fuel prices, a good performance of tourism, remittances and exports.

By yearend 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 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, down 2.7 percent this year.

"Economic activity continues to grow domestically 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.

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.