Dominican Republic: Central Bank reduces interest rates to support economy

The Monetary Board announced yesterday a series of monetary, financial and exchange measures that will be implemented to lessen the negative impact of the covid-19 pandemic on the Dominican economy, among which the reduction of the monetary policy rate (TPM) in 100 basis points, from 4.50% to 3.50% per year. This with the aim of encouraging a general lowering of interest rates in the financial system through the monetary policy transmission mechanism.

Also, in order to provide liquidity at a low cost to financial institutions, a decrease of 150 basic points in the interest rate of the permanent liquidity expansion facility (overnight repos) was approved, going from 6.00% to 4.50 Annual%.

Additionally, it was decided to reduce the interest rate on short-term interest-bearing deposits at the Central Bank (Overnight), from 3.00% to 2.50% per year. This measure contributes to reducing the interbank interest rate and, therefore, reduces the cost of funding for financial institutions.

Other measures announced by the Governor of the Central Bank, Héctor Valdez Albizu, are the disposition of RD $ 52 billion to increase liquidity to financial entities, with resources freed from legal reserve.

This provision seeks to relax the requirements for coverage of the legal reserve in national currency of financial institutions, recognizing the titles of the Central Bank and the Ministry of Finance as valid coverage for an amount of up to RD $ 22,321.0 million, which represents 2.0 percentage points of the legal reserve ratio.

Of this amount, RD $ 10 billion will be allocated to loans to households and to micro, small and medium-sized enterprises and to the trade sector, while the rest of the funds, some RD $ 12,321.0 million will be channeled to the productive sectors, mainly to tourism and the export sector, at interest rates in all cases not greater than 8.0% per year.

In this sense, Valdez Albizu stressed that the new loans granted by financial institutions with these resources will be classified as risk category A, with zero provisions, and will not be considered in the calculation of the solvency index.


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