Inflation and economic growth slow as government negotiates 2022 budget amendment

DOMINICAN REPUBLIC - Report 13 Sep 2022 by Magdalena Lizardo

Monthly inflation in August (0.21%) slowed sharply compared to average monthly inflation in January-July 2022 (0.76%). Economic activity growth also slowed in July (4.7% y/y). Even so, accumulated economic growth from January-July was 5.5%, compared to the same period in 2021.

The Central Bank continues to follow the restrictive policy established since the end of 2021, and on August 31st increased the monetary policy rate by 25 bp. Meanwhile, exchange rate appreciation is beginning to worry the productive sectors, since that makes the export sector less competitive, although exporters recognize that it has also had a favorable effect, in cushioning inflationary pressure. In an effort to avoid further peso appreciation, the Central Bank has bought $1,200 million over the last three months.

On the central government side, an amendment to the 2022 budget was submitted to Congress. This would increase the deficit by 0.7% of GDP and, instead of generating a primary surplus (of 0.31% of GDP) as originally contemplated, would instead create a primary deficit (of 0.61% of GDP).

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