Central Bank cuts rates in November

Central Bank continues monetary policy loosening cycle: At its meeting on 29 November, the Central Bank of the Dominican Republic (BCRD) decided to reduce its policy rate by 25 basis points to 6.00%. This brought overall rate cuts to 250 basis points since May 2023.

Within-target inflation and slowing credit growth motivate the cut: The key domestic factors influencing the BCRD's decision included inflation, which has remained at the lower end of the 3.0–5.0% target range throughout the year, and the recent deceleration of private credit. Additionally, the BCRD took into account global commodity prices, geopolitical uncertainty and recent interest rate cuts by major central banks. Moreover, the Bank forecasts that both headline and core inflation will remain within the target range going forward.

BCRD to continue cutting rates in 2025: The Bank stated that it would continue to adopt measures to “preserve macroeconomic stability and contribute to keeping inflation within the target range”. Our panel anticipates about 100 basis points of further easing by end-2025. Upside risks to interest rates include unanticipated depreciation of the peso, softer rate cuts by the U.S. Fed and commodity price spikes, while a key downside risk is weaker-than-anticipated GDP growth.

Panelist insight: Analysts at the EIU commented: “We believe that the BCRD will […] resume easing in mid-2025, resulting in a terminal rate of 5% (below our estimated neutral rate of 6-7%), based on our assumption that the BCRD will want to narrow the interest-rate differential with the US. […] If the US keeps its interest rates higher for longer, the Dominican peso would weaken by more than we expect, lifting import prices.”

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