The financial sector interest rates have not decreased in proportion to the sustained reduction of the monetary policy rate (MPR) of the Central Bank of the Dominican Republic (BCRD), which limits access to credit under more favorable conditions for users.
Since June 2023, the Central Bank has implemented eight reductions in your TPM as a reflection of the improvement in inflation levels. This policy has taken the reference rate from 8.50% in May 2023 to 6.25% in November 2024, marking a cumulative decrease of 225 basis points. However, the rates applied by the financial entities have not reflected this decrease to the same magnitude, remaining disproportionately high.
For example, in October 2024, the average active rate of multiple banks stood at 11.32%, three percentage points above the level recorded in June 2023, when the Central Bank began its monetary flexibility policy.
This behavior contrasts with the expectations of users, who expected a significant reduction in the rates to access credits for housing, vehicles, consumption and personal loans.
After one of the decreases in the Central Bank’s MPR, at the end of August of this year, Free Diary conducted a survey with some representatives of the financial sector to determine when would rates drop.
To date, the executive president of the Cibao Savings and Loan Association, José Ventura, explained to this medium how the reduction scheme works: “That is a process, there is no exact timebut there is always talk of around six and eight weeks for there to be a derivative effect on both rates, the active and passive rates,” he responded in a meeting with journalists held in September.
At that time, the executive considered that rates could begin to fall to mid octoberwhich would impact the economy, especially small businesses that require financing.
Although the financial entities have carried out minimum settings to their rates, these remain high, limiting the positive impact that was expected from the expansive monetary policy.
Why don’t rates decrease?
The economist Jaime Aristy Escuder proposed as possible impact of the issue of international reserveswhich, he assured, decreased by 1,553 million dollars between July and October 2024, causing a drop in liquidity – money available for daily operations – of the financial sector.
He added in his opinion column, dated November 4, 2024, that there are other external and internal factors that require review by the monetary authority to ensure that rates remain at the pace of monetary policy.
“If you compare it with the interbank interest ratewhose historical level was 89 basis points above the reference interest rate, an anomalous deviation is also observed,” he wrote.
- He recalled that in October of this year, the interbank rate reached 12.27%, That is, 602 basis points above the current reference rate and 90 basis points more than the level registered in May 2023.
“The data show that in the last 17 months both interest rates moved in the opposite direction, behavior that is clearly incoherent,” the economist stressed.
A year ago he visited the Dominican Republic
Ricardo Penfold, international financial expert, presented on December 4, 2023 an in-depth analysis of the Dominican economy and its ability to resist the international impacts that have tested monetary and financial policies, highlighting the work of the Central Bank of the Dominican Republic (BCRD). However, he observed some relevant aspects that could put its potential at risk.
“I see the real rates – of interest – in Colombia, which has its problems, in Brazil, South Africa, and I compare them with those of the Dominican Republic and I do not understand why they are so high,” the expert responded to a question from the public after dictating the conference “Post-pandemic global financial markets: opportunities for the Dominican Republic.”
The economist indicated, at that time: “I have no way to explain it. It is as if there is a risk there that is being appreciated or it is a market imperfection.” To date, rates remain high.
