Inflation converging to target range, but growth is sluggish
The Dominican economy grew by a cumulative 1.4% in Q1 2023, the third lowest rate for a Q1 during 2005-2023. Meanwhile, y/y inflation was 5.15% in April, the lowest y/y rate recorded since December 2020, which shortens the distance to the annual inflation target range of 4±1%.
The restrictive monetary policy stance remains unchanged so far. According to the Central Bank, reaching the inflation target range is the key to reconsidering a change in monetary stance aimed at restoring potential economic growth. However, in addition to monetary considerations, the achievement of the inflation target is also conditioned upon the evolution of international prices of raw materials, and maintaining central government subsidies.
The current account has improved in Q1 2023, compared to the same period in 2022, and the peso appreciated -1.3% in April 2023, from December 2022. Net international reserves have continued to increase throughout 2023, to a record of $16.2 billion in April.
The government has maintained fiscal discipline and control over public spending during the first four months of 2023, with an execution of 16.4% of the total deficit planned for 2023.
Climate change continued to have a negative impact, not only due to the worsening of the drought, but also with the arrival of record levels of sargassum on the Dominican coasts, which has affected beaches.
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