Green Movement Power Expands
Monetary policy has changed course, at least in the short run. Effective August 1st, the Monetary Board cut by 2.2% the coefficient of required reserves for financial intermediation entities. This represents a release of up to DOP 20.4 billion (nearly $425 million). The Board also cut policy interest rates by 50 basis points, from 5.75% to 5.25%. This was the authorities’ reaction to complaints of liquidity shortages and weakening in economic activity, and to evidence of a fall in GDP growth.
We think the Board reacted promptly to address liquidity shortages, and before evidence of a fall in economic activity. We expect these measures will have a positive immediate and midterm effect on demand and investment. We wouldn’t be surprised if short-term economic activity indicators soon rebounded.
Monthly CPI inflation was very low in June, with consumer prices rising just 0.06% over May. Thus, annualized inflation declined from 3.11% in May to 2.55% in June, falling below the target range (4.0% ± 1.0%).
Interest rates kept falling. By June 30th, the weighted average rate for commercial banks had fallen by 147 points from May. The borrowing interest rate also fell by 4 points. These results demonstrate that, though monetary policy was unchanged up to July, the banks cut their intermediation margins, looking to lend to the private sector, as expectations of weaker growth increased. But tourism continues to shine, with visits in the year to June up 6.5% from the same period last year.
The Green Movement organized a massive July 16th demonstration in Santo Domingo, to protest corruption and impunity. It was the largest civic protest of recent decades, and a great success for the movement. Representatives escalated their criticism to President Danilo Medina, and called for him to be tried -- though they did not specify any charges. In the past, the movement has argued that the president obstructed justice, especially in influencing the selective way the Attorney General was handling the Odebrecht allegations (in which Medina’s administration hasn’t been touched). More recently, the movement has pointed fingers at the Punta Catalina coal plants project. A commission appointed by Medina to investigate the bidding process for the construction of the Punta Catalina plants has, unsurprisingly, concluded that it all was legal. No one expected the commissioners to challenge Medina. So the main public interpretation was that the commission was meant to protect the president from being implicated.
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