Central Bank reduces rates in September

First cut this year brings rates down to multi-year low: At its meeting on 30 September, the Central Bank of the Dominican Republic (BCRD) reduced its policy interest rate from 5.75% to 5.50%. The decision came on the heels of eight consecutive holds and brought the policy rate to an over three-year low.

Sluggish economy prompts rate cut: The Bank decided to reduce rates chiefly to stimulate domestic demand: Economic activity growth more than halved from 2024’s average in January–August of this year, as activity in key sectors, such as manufacturing and construction, has slowed. Additionally, inflation has remained within the BCRD’s target range of 3.0–5.0% since the first half of 2023, providing the BCRD with leeway to loosen its policy stance.

Rates could ease further: Our panel is almost equally split between those who expect rates to remain on hold through the end of 2025 and those who see 25–50 basis points of further rate reductions. The pace and timing of U.S. Fed policy moves are key to watch, as the BCRD aims to reduce large fluctuations of the Dominican peso vs the USD.

Panelist insight: EIU analysts said: “We expect that the BCRD will [cut] the policy rate […] to a terminal rate of 5% by end-2025. The BCRD will seek to keep interest-rate differentials with the US monetary policy rate stable. There is a moderate risk that the Dominican policy rate will be held at the current level for longer. Local inflation could pick up in 2025-26 by more than we currently expect and a re-escalation of the US-China trade war would lift prices in the US, which would pass through to the Dominican Republic via higher import prices, as the US is the country's main source of imported goods.”

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