Santo Domingo’s Central Bank remains optimistic despite lower liquidity

The bank indicated that with prices of food and fuel at near record levels, it is expected that the current accounts deficit will fall to 7.7% of the GDP in 2011.

The Central Bank of the Dominican Republic released the Letter of Intention sent by the administration to the International Monetary Fund (IMF), describing as positive the macroeconomic situation both in 2010 and so far in 2011. It mentions that for 2011, the situation is better than expected. Likewise, it says that the government is committed to reduce the public deficit by 1% of the GDP each year to help protect the fiscal sustainability and recover the tax space in the context of a growing economy. The entity reported that as soon as the board of directors reviews the Letter of Intention, the country will receive RD$350.34 million right away, of which US$133.38 million will be used by the central government, and US$216.96 will go to strengthen the international reserves of the Central Bank. Furthermore, the government revealed that it will introduce legislation on “the technical tariff” at the end of September, which covers distribution losses for only 12% instead of the actual distribution losses that are over 40%.

Their Central Bank reported the inflow of resources to arrive after the IMF approves the Letter of Intention together with the continuation of the monetary and fiscal policies will contribute to maintain macroeconomic stability, and the relative stability of the exchange rate.

The government recognizes, in the Letter of Intention, that there has been a spike in the inflation in the first five months of 2011 due to the shock of external prices for food and fuel. These increases increased the 12-month inflation rate to 8% and the underlying rate in 5.6% in May.

Santo Domingo’s Central Bank says there are no signs of stress in the banking sector and the indicators of bank solidity are at adequate levels. Nonetheless, the levels of liquidity have fallen due to operations carried out by the Central Bank in the first five months of 2011.

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