Dominican Republic Update: Inflation Converging To Target

• The Central Bank (Banco Central de la Republica Dominicana (BCRD) reported that consumer prices rose by 0.24% month-over-month (M/M), and 5.15% year-over-year (Y/Y) in April, reflecting a decline of 75bps since March and by 449bp from a year ago. Core inflation stood at 0.32% M/M, 5.83% Y/Y, down 33bps from March and 146bp from its May 2022 peak.
• The BCRD projects full convergence to the target range (4% +/- 100bp) during Q2 2023. It reiterated that the declining inflation trend was the result of restrictive monetary policy coupled with targeted subsidies for gasoline and electricity.
• In April, food and non-alcoholic beverages accounted for half of the monthly inflation, while transportation registered deflation. Tradable goods' inflation was 0.20% M/M, while non-tradable items recorded a 0.29% M/M inflation rate.
• The successful disinflation policy suggests that the Central Bank may soon start easing monetary policy. Fitch forecasts that the BCRD will continue to hold interest rates at their current levels until later this year when they are likely to initiate a rate-cutting cycle. Fitch also projects headline inflation to average 5.6% y-o-y in 2023, down from 8.8% y-o-y in 2022, and fall to 4.9% by the end-2023 – just within the BCRD’s target range.
• Additionally, the DR economy is expected to record 3.8% GDP growth in 2023, far below the pre-pandemic average of 6.1% between 2015 and 2019, signalling that elevated rates have had the intended effect on domestic demand.

(Sources: Oppenheimer & Fitch Solutions)