Santo Domingo, DR
In the construction of its narrative on the causes of inflation in the Dominican Republic, the Central Bank uses the same disinformation and manipulation techniques that it uses when referring to economic growth in the post-Covid reactivation stage.
For example, the Central Bank even stated, as I have maintained on other occasions, that during 2021 the Dominican economy had a growth of 12.3 percent of GDP. Nothing more uncertain. Actually, that was the result of a statistical rebound, since in 2020, the year of the pandemic, the national economy had a drop of -6.7 percent.
In its official documents, the Central Bank recognizes this. In his report on monetary policy of January 31 of this year, 2022, he points out:
“In the domestic environment, the process of recovery of aggregate demand has strengthened, highlighting the year-on-year growth of 12.3 percent… equivalent to a real expansion of 4.7 percent compared to 2019.”
Thus, according to the Central Bank itself, the real expansion of our economy was not 12.3 percent, but only 4.7 percent.
But they continue to insist that it was 12.3 percent, which conveys the impression not only that there is no crisis in the Dominican Republic, but that we are the country with the highest level of growth in the world.
However, when it is stated that the Dominican economy will expand this year, 2022, around 5.5 and 6.0 percent of GDP, it is not indicated that this would represent a decrease of more than 6 percent of GDP, in relation to 2021 , which according to official calculations was 12.3 percent.
On the contrary, it is now said that that 5.5 or 6 percent is above the potential growth of our economy, which highlights its good performance, as well as its robust and resilient character.
Obviously, the sarcasm might not have been greater.
Inflation
In the same document that we have cited, the main monetary authority of the country, when referring to the phenomenon of inflation, stated:
“In an active monetary policy scenario, year-on-year inflation, which stood at 7.72 percent in October 2021, would converge to the 4+1 target range during the second half of 2022, at a more gradual pace than originally forecast. ”
By arguing that convergence to the inflation target range would take place at a more gradual rate than originally expected, the Central Bank is admitting that it was wrong. This is so, having forecast that inflation would reach 4+1 before the second half of this year.
But he was wrong once more in his second prediction, since not even by a miracle of the Virgin of La Altagracia, during the remaining three months of this year, between September and December, will it be possible to reach the inflation target that, at present, , is at 8.64 percent.
To reduce the high cost of living that affects Dominican society, the Central Bank implemented what the entity itself has described as a “gradual plan for the normalization of monetary policy.”
That plan began with an increase in the monetary policy rate by 50 basic points, from 3.00 percent to 3.50 percent, with the objective, as we have said, of lowering the inflation rate and achieving price stability.
The causes
For the main monetary entity of our country, the current rise in prices that impacts the national economy depends only on external factors.
Among these factors are the increase in the prices of oil and other raw materials; the disruption of global production and distribution chains; the increase in the costs of international container transport; and the geopolitical tensions generated by Russia’s invasion of Ukraine.
Undoubtedly, all these factors have contributed to the rise in prices worldwide and in the Dominican Republic, but it is striking that the Central Bank does not mention any of a national nature.
Is the increase in the cost of maritime freight the fundamental reason why the Central Bank raises the monetary policy rates? Is it because there is a disruption of global value chains or because of geopolitical conflicts? Nothing of that. The fundamental reason is due to the application, by the Central Bank, of a monetary expansion policy to reactivate the growth of the economy, which has collapsed as a result of the Covid-19 pandemic.
In this stage of expansion of monetary policy, the Central Bank came to issue around RD$215 billion pesos. Now, to reduce inflation, the Central Bank has had to reverse that policy of monetary expansion.
On the contrary, it has had to adopt restrictive monetary measures, with which, due to the increase in the interest rate of commercial banks and a decrease in liquidity in the financial system, there will be less money circulating in the market.
From November 2021 to August of this year, the Central Bank has increased the monetary policy rate eight times, raising it from 3.00 percent to 8.00 percent.
This restrictive monetary policy is not only being applied in the Dominican Republic. It is also happening globally. This is what the Federal Reserve is doing in the United States; the European Central Bank; and the central banks of Latin America.
By applying a restrictive monetary policy, in all these places there is an awareness that a recession might occur; or at the very least, a decline in economic growth and an increase in unemployment.
Except, of course, in the Dominican Republic, where the Central Bank seems to have found the universal magic formula of reaching its inflation target, at the same time as increased growth and greater job creation. Naturally, whoever manages to simultaneously achieve all these objectives, incompatible with each other, deserves a special award, in recognition of the ability to manipulate and adulterate reality, defying the laws of logic and common sense.
