He Banco Central The Dominican Republic (BCRD) projects that the economy will return to its potential growth level by 2024, without indicating whether it would be necessary to revise the projections for this year.
Instead of an “open page” usually published to explain the economic environment and the expected effects of monetary policy, it explains that the transmission mechanism of monetary policy operates with delays that can extend over a year.
In this line, it stands alone and economic activity is expected to change further until it returns to its potential growth rate, which is expected to occur next year in 2024.
Analyzing the composition of variation in GDP by activity, construction is a sector that has a large multiplier effect on other parts of the economy and has received resources of RD$12,300 million and approximately RD$11,000 million through monetary facilities as of September. In millions in October due to the mentioned new measures, -4.7% in the first quarter and -0.4% in the second quarter (variations in its real added value were recorded mainly due to moderate internal demand and high costs of key inputs) for an annual increase of 5.5% in July-September 2023.
In particular, the construction sector expanded by 9.5% in September 2023 compared to the same month of the previous year, standing out as the best performer so far this year, and is forecast to maintain significant momentum for the rest of 2023. And until 2024.
Below is the central bank’s analysis:
As is generally known, in recent years the Dominican economy has been exposed to a complex and volatile international environment, characterized mainly by inflationary pressures derived from the epidemic, which led to a significant increase in the price of raw materials (materials) including oil, supply chain disruptions and high container transportation costs. These elements took place against a backdrop of monetary and fiscal stimulus policies, which occurred in a globally synchronized manner and led to a rapid recovery of domestic demand in most countries, preventing contraction and loss of output levels. Jobs will be more.
The Central Bank of the Dominican Republic (BCRD) is the prime mover, with the aim of returning inflation to the target range of 4% ± 1% as soon as the pandemic is over. The region is set to begin a transition from expansionary to accommodative monetary policy stance, several months ahead of its main trading partner, the US Federal Reserve Bank. In this sense, the BCRD decided to raise its Monetary Policy Rate (MPR) from a historic low of 3.00% in November 2021 to 8.50% in October 2022.
For this purpose, in this year, the controlled cut in monetary policy, government subsidies, freezing of internal price of fuel and suspension of electricity tariff were successful and managed to reduce inflation by 9.64%. In April 2022 it was 4.41% in September 2023. Likewise, excluding prices of the most volatile components of the basket such as some food, fuel and other items with regulated prices, core inflation eased to 4.68% from 7.29% in May 2022. September 2023. As can be seen, both measures are currently within the monetary plan’s target range of 4% ±1% and both market analysts’ expectations and the central bank’s economic forecasting models point to inflation indicators. The remaining 2023 and 2024 will remain within the target range.
A relevant point to highlight is that price stability has been restored in a very difficult situation, as Governor Hector Valdes Albizu pointed out in his recent speech.
Naturally, as expected, the moderation of domestic demand in both consumption and investment,
Associated with restrictive monetary policy necessary to reduce inflation, reflected in economic recession. This is not a phenomenon exclusive to the Dominican Republic, as can be seen in the latest growth forecasts of international organizations for the Latin American region, which in the case of the International Monetary Fund (IMF) is 2.3% for 2023, for a lower expansion of 1.7 percentage points relative to the 2022 result.
Once inflation is under control, with the expectation that it will remain within the target range over the monetary policy horizon, the issuing institution has implemented stimulus policies aimed at encouraging a new process of change in the monetary policy cycle and contributing to reactivation. Economic activity. These measures include reducing the MPR by 100 basis points to 7.50% per annum and providing liquidity through statutory reserves and quick liquidity facility through financial intermediaries, often at interest rates above 9% per annum, the Monetary Board chairman highlighted in his speech on October 23. It was also announced on the day that the Monetary Board approved a new rapid liquidity facility of RD$40,000 million, this time for the construction, manufacturing, export and agriculture sectors. Of these sources, as of October 26, the financial institution has already remitted some RD$18,614 million.
With more favorable monetary and fiscal conditions and greater efficiency and effectiveness in capital spending by the government, the Dominican economy has begun a recovery process. In this sense, the preliminary figures of the Monthly Indicator of Economic Activity (IMAE) have registered a broad expansion of 3.1% in September and 2.6% in July-September this year when compared to the same period of the previous year. , which stand out as the year’s highest rates for a month and a quarter, respectively.