Dominican Republic Holds Key Rate Despite Slowing Growth

The Dominican Republic’s central bank held the benchmark interest rate unchanged for the first time since June as policy makers bet that inflation will remain under control next year.

The bank kept the overnight rate at 5 percent, citing no foreseeable inflationary pressures through next year and a moderate economic growth forecast in the U.S. Policy makers in the Caribbean’s biggest economy had cut the rate 175 basis points, or 1.75 percentage points, since May, including a 50 basis point reduction in August.

“Production and internal demand remain below their long- term trend, while market interest rates are beginning to be reduced,” the bank said in today’s statement.

The Dominican Republic’s $57 billion economy should grow 4 percent this year after expanding 3.8 percent in the first half from a year ago, the central bank said. That was down from a June 29 forecast of 4 percent to 4.5 percent.

The island nation’s fiscal position deteriorated in the first half of the year due to higher expenditures and a public sector deficit that expanded to 3.3 percent of gross domestic product, according to a statement earlier this month from the International Monetary Fund.

“The short-term macroeconomic outlook poses a challenge to the authorities, reflecting the need to strengthen the domestic macroeconomic framework, in particular to significantly tighten the fiscal position, and to cope with risks emanating from the global economy,” the IMF said in a Sept. 19 statement.

To contact the reporter on this story: Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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