Monetary and Financial Sector

Nominal Interest Rate

During the 1990s, the Dominican economy moved forward with a relaxation on interest rates. This implies that the rates are highly dependent on the expectations of economic agents (devaluation of the currency, inflation) and the internal conditions of the money markets, i.e. monetary supply and demand.

In 1990, according to statistics from the BCRD, the nominal active interest rate was 40%. Following the macroeconomic stability, active rates tended to lower, at around 23.6% in 2000. We can clearly show in the following graph the nominal rates have been relatively stable. However, if we compare 2004 with 1997 an increase of 50% in the rates is clearly seen, active and passive, with the passive rate going from 13.3% in 1997 to 21.1% in 2004; and the active rate, went from 19% in 1997 to 30.3% in 2004.

Real Interest Rate

According to economic theory, an economy that enjoys macroeconomic stability and within which interest rates are freely determined by the market, the real interest rates a normally positive. Empirical evidence has demonstrated that positive real interest rates contribute to savings and promote the allocation of credit to be as efficient as possible.

Following on from this, the evolution of the active and passive interest rates in the Dominican economy can be seen. As we can see, its growth has followed a certain pattern, except in the period from 2003-2004 when the banking and exchange system crisis occurred causing the active and passive rates to fall dramatically.

Real Interest Rates from Financial Intermediation entities *
2000-2006

(En %)

Tear

Multiple Banks

Active and Passive Associations

Development Banks

Financial Institutions

Inflation (12 month variation)**

Active

Passive

Active

Passive

Active

Passive

Active

Passive

2000

17.77

8.70

11.86

8.39

20.47

11.97

25.27

11.37

9.02

2001

19.26

11.04

16.83

11.62

22.91

14.39

29.25

13.61

4.38

2002

15.61

6.28

9.75

6.45

18.35

8.72

22.27

7.67

10.51

2003

(11.27)

(22.13)

(18.12)

(21.68)

(4.33)

(18.50)

(6.22)

(20.96)

42.66

2004

3.91

(7.58)

(1.31)

(5.92)

15.14

(4.11)

10.61

(5.50)

28.74

2005

15.78

6.14

13.23

7.17

29.45

8.03

27.14

13.12

7.44

*Calculated base on difference between nominal rates and the Consumer Price  Index in the last 12 months.

**Base 1999.

Source: Central Bank of the Dominican Republic (BCRD)

Related Links: