Macroeconomic Forecast Dominican Republic

July 2006 | Macroeconomic Forecasts

Interest rates are easing, with the average annual rate having fallen to 22.71% in March, from 32.16% in the same month of 2005, and we think that there is room for further easing over the coming months. That said, the central bank will have to be vigilant over the coming months, particularly about headline CPI, given the vagaries of international energy prices, to which the Republic is highly exposed. CPI in the first five months of the year was a relatively comfortable 2.7% (albeit above the 0.78% of Jan-May 2005, when the bank was in extremely hawkish mode), while in the 12 months to May, it came in at 9.51% y-o-y. However, the central bank is quick to point out that in May, the monthly outturn, which registered 1.57% m-o-m, would in fact have been 1.14% were it not for the effects of higher oil prices. As such, we think that the bank will be minded to ease rates further, although we remain concerned that the inflation demons are not fully quashed and could yet pose a longer-term macro risk.

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