Spanish
Santo Domingo. - Economist and former Superintendent of Banks, Haivanjoe Ng Cortiñas, warned this Monday that the Dominican Republic is going through a "monetary trap," noting that the Central Bank's measures have lost effectiveness in impacting the real economy.
"The Central Bank is trapped in what economic theory calls a liquidity trap, in which its monetary policy decisions are ineffective and unable to influence the decisions made by economic agents," Cortiñas said.
During an interview on the program Matutino Su Mundo, the specialist explained that, despite the reduction in the monetary policy rate, which fell from 8.5% in June 2023 to 5.75% in September 2025, bank interest rates remain high: the active rate is around 15%, while the passive rate is around 8.7%.
"The pass-through effect does not occur, and that reinforces the liquidity trap," the economist pointed out.
Velocity of money has decreased
Cortiñas explained that the velocity of money in the country has decreased by almost 5% in 2025, while the active interest rate of banks remains around 15%, despite the reduction of the monetary policy rate from 8.5% to 5.75% since June 2023. This, he pointed out, generates a limited effect on investment and commercial transactions, driving the preference to keep liquid resources or exchange them for dollars. "Some of the reasons are international, such as the strong revaluation of the dollar against the Japanese yen, the British pound and the euro," explained Haivanjoe Ng Cortiñas. He noted that these global variations directly impact the local foreign exchange market. Uncertainty scenario The economist highlighted that the depreciation of the Dominican peso, which has reached nearly 7% between April and September 2025, is linked to both international factors such as the appreciation of the dollar against other currencies and local fiscal risks, including the increase in the budget deficit from 3% to 3.47% with the supplementary budget of 2025. This situation, he stated, generates uncertainty and reduces the demand for credit, which grew less than 9% in the first seven months of 2025, compared to 17% the previous year. Cortiñas asserted that the high interest rate paid by the Central Bank forces private banks not to reduce their own rates. By not doing so, banks seek to maintain a higher margin (spread), which causes the passive rate to also increase, since those who have liquid resources in pesos demand to receive a higher return on their deposits. Central Bank Intervention The economist pointed out that the Central Bank should refrain from intervening in the foreign exchange market: "That's another expression for which the Central Bank should consider not intervening in the market, because the rate of international reserves has fallen considerably and, in addition, the market sends signals that economic agents expect a higher exchange rate, around 64," explained the economist. He added that intervening artificially would only have a political and not an economic impact: "Artificially reducing it with an intervention by the Central Bank and placing it at the amount they understand, 63 or 62, is only seeking a political effect rather than an economic effect," Cortiñas emphasized. Dollar projection at year-end Haivanjoe Ng Cortiñas warned that "if the Central Bank doesn't act, the dollar could reach a little over 65 pesos." However, he added that "if it acts, they could perfectly bring it to the estimate they have in their official projection, which is around 63.40 pesos."The economist also pointed out that "any increase in the exchange rate increases inflation in the Dominican Republic." He explained that "this 7% depreciation that has occurred in the last two months generates an additional inflation to the 1.8% we already have" and recalled that "every time the exchange rate increases, inflation will increase in the short or medium term."
International Monetary Fund; low expectations Cortiñas revealed that the International Monetary Fund has probably broadened the range of consultations, involving more actors than just sectors. He pointed out that this strategy allows to "really take the pulse of the Dominican economy." However, he added, "I do not have high expectations for the final report that will be derived from this consultation under Article 4 of the International Monetary Fund's founding." Regarding the content of the report, the economist indicated that, "in the end, what it will say is that there are solid economic foundations, that the economy is growing adequately, that the financial system is robust and that the Dominican economy is moving with stability in the inflation rate, although with some challenges." Regarding those challenges, he stated that they "are mainly on the electrical side and especially on the issue of subsidies, which involve the challenge of streamlining public finances." He pointed out that, probably, "the expression fiscal reform will not even be used, but they will focus on fiscal consolidation, softening the diplomatic language of the IMF's final notes." Ng Cortiñas emphasized that "it's just a report: there's one for internal use by the State and another for external use, with different objectives depending on the audience it's aimed at." Fiscal populism and deficiency in public management In the fiscal sphere, the economist criticized the increase in the budget deficit from 3% to 3.47% of GDP, calling the policy "fiscal populism" due to the sustained increase in public spending that exceeded 6 trillion pesos in the last five years. “How is it possible that authorities recklessly submit a bill to amend the budget and raise the fiscal deficit from 3 to 3.47% of GDP? This sends a signal to economic agents that their exposure to fiscal risks has increased, and consequently, they adopt more conservative positions in their investment decisions.” He pointed out that the poor execution of the budget limits economic growth and that, even with improvements in capital expenditure, the impact would be minimal, estimated at just 0.4% additional growth. Finally, he indicated that a growth close to 3% for 2025 would be positive, although he stressed that the improvement in economic performance will depend on a more efficient public management in the execution of spending.
