Dominican Republic Keeps Overnight Rate at 5% for Sixth Month

The Dominican Republic’s central bank held the benchmark interest rate unchanged for a sixth consecutive month as policy makers seek to nurture credit expansion in the Caribbean’s largest economy.

Policy makers led by central bank President Hector Valdez Albizu held the rate at 5 percent today after lowering the benchmark 175 basis points, or 1.75 percentage points, since May 2012. The economy grew 3.9 percent last year, below potential, the bank said.

“Credit to the private sector in local currency continues recovering and projections suggest that at year-end financing will be growing faster than output,” according to a statement posted on the bank’s website. “Greater credit would permit a faster recovery in consumption and private investment, helping output expand at a pace closer to potential.”

Consumer prices rose 1.3 percent in January and 4.8 percent in the previous 12 months, within the bank’s target of 5 percent plus or minus 1 percentage point. Tax changes approved last year, including a value-added tax increase to 18 percent from 16 percent, caused inflation to jump in January, Bernardo Fuentes, economist at Santo Domingo-based consulting firm Economi-K SA, said in a phone interview.

“Inflation won’t keep up that rhythm as the central bank will work to control it in upcoming months,” Fuentes said.