Monthly headline inflation falls, while core inflation rises

DOMINICAN REPUBLIC - Report 15 Feb 2023 by Magdalena Lizardo

Inflation in December 2022 led the Central Bank to leave its policy rate unchanged at 8.5% on January 30th, 2023, arguing that the inflationary dynamics had responded to both the monetary restriction program and the subsidies implemented by the government. Although it emphasized sticking to the restrictive position, the Central Bank decided to extend credit facilities to stimulate the construction sector.

However, the data for January 2023 showed that although monthly headline inflation fell from December 2022, reversing the upward trend that began in October 2022, monthly core inflation grew in both December and January. Under these circumstances, the question now is whether the Central Bank will intensify its restrictive monetary stance, or will it continue to maintain the 8.5% annual monetary policy rate fixed in November 2022, especially after the Fed rate increased in February 2023.

Although GDP grew 4.9% in 2022 -- a relatively high rate in the regional context -- fear persists that the prevailing economic slowdown in Q4 2022 will continue, especially if the increase in the lending rate, at 13.97% in January 2023, is taken into account. This is its highest level since June 2017.

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