Central Bank of the Dominican Republic
SANTO DOMINGO.- The Central Bank affirms that at the moment the financial entities of the Dominican Republic maintain a positive net position in foreign currency and have wide availability that exceeds US $ 1.9 billion.
He stressed that this situation is healthy and indicates that they have the ability to put their liabilities in foreign currency, and therefore, do not require hoarding foreign exchange from the market.
However, he calls on the private sector and the general public to act “with caution and patience, taking into account that the Dominican economy is not isolated from the events that occur in the rest of the world.”
Dominican currency with little depreciation
In a press document sent to ALMOMENTO.NET, the entity recalls that COVID-19 has caused severe consequences on the main economies of the world, including the United States, and its effects have been manifested in unemployment, the fall of the service sectors, a significant correction in the performance of the world’s main stock exchanges and a stampede towards financial refuge instruments that has brought the yield curve of the United States Treasury to levels close to 0%.
He points out that for the rest of the emerging markets the situation has also been difficult, as they have suffered significant capital outflows due to the risk aversion of investors globally and in economies highly dependent on the export of raw materials (commoditties), at a particular level.
It is worth noting that as of May the currencies of countries such as Brazil, Mexico, Colombia, Argentina and Chile have shown a cumulative depreciation of 31.7%, 22.1%, 15.5%, 11.3% and 9.4%, respectively, but nevertheless that of the Republic Dominican is one of the lowest depreciation.
The Central Bank maintains that while countries in the region (such as Costa Rica, Ecuador, Bolivia, Argentina, Guatemala, Colombia and Mexico) have also experienced reductions in their credit ratings, The Dominican Republic has been a great exception because eIn its most recent report, the Fitch rating agency has not modified its rating, although it recommends that this country be cautious on the international scene, maintaining a sign of confidence in the Dominican economy.
Increased demand for foreign exchange
Although he admits that in the Dominican Republic there has been an increase in the demand for foreign exchange “as a precautionary measure”, generated by the uncertainty associated with the impact of the spread of COVID-19 globally, he points out that the Central Bank continues to participate “in proactively and uninterruptedly ”in the exchange market, with the primary objective of maintaining price stability.
He adds that in this sense he has exercised his role as executor of exchange rate policy in order to promote adequate liquidity conditions in foreign currency and guarantee “the proper functioning of the productive sectors and certainty for economic agents.”
The Bank highlights that at the end of 2019, it managed to accumulate international reserves “at historical optimum levels”, which allowed it to start the year with reserves of around 10% of GDP, equivalent to US $ 8,782 million.
It indicates that as of May 13, 2020, they amounted to US $ 8,603 million, which has allowed it to participate in the foreign exchange buying and selling market, to which it injected US $ 1,928 million through its “electronic trading platform for foreign exchange”.
He adds that he has deployed a broad intervention strategy, making various instruments available to the market, both in the spot market (spot) as in the future (forwards), thus facilitating economic agents to organize their present and future currency purchases, and at the same time, cover their expectations of exchange risk typical of events of high uncertainty such as the one we are experiencing in the face of the spread of COVID-19.
“In addition, the BCRD reiterates that it has made US $ 622 million available to financial institutions through Repos in foreign currency and the release of legal reserve requirements in dollars,” it indicates.
He affirms that these strategies, which have made it possible to make increasingly efficient use of international reserves, are consistent with international best practices and with measures by other central banks in the region, such as those of Mexico, Peru and Brazil.
The Central Bank believes that these actions have contributed to maintaining the flow of the North American currency in the economy in this adverse environment, since the private sector, mainly the priority sectors (supermarkets, agribusiness, food in general, pharmaceuticals, health and energy) , have been able to operate without major setbacks.
At the same time, he adds, coordinated efforts with local banks have made it possible to take advantage of the liquidity in foreign currency that banks maintain abroad to support the supply of foreign exchange in the market in the face of episodes of high demand.
A bet on fundamentals, credibility and the future
The Central Bank indicates that the demand for foreign exchange in an environment of high uncertainty is added to the effect of the monetary stimulus measures that have been taken to mitigate the economic impact of the Coronavirus.
He reports that, given the low inflationary pressures and to continue supporting productive activities, more than RD $ 120 billion pesos have been made available to economic agents through financial intermediation entities.
He emphasizes that thanks to the monetary policy transmission mechanisms, the effects of these measures are manifesting themselves “in an additional boost in credit to the private sector, despite the adverse events we are experiencing.”