The Governor of the Central Bank and members of the Monetary Board at a press conference this Wednesday.
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SANTO DOMINGO.- The Central Bank and the Monetary Board of the Dominican Republic announced a set of measures aimed at reducing interest rates in the financial market, providing liquidity to banking entities, both in national and foreign currency, and to temporarily ease prudential regulations in the financial sector.
They are aimed at guaranteeing the proper functioning of the Dominican economy in a complex international environment, characterized by a high level of uncertainty, as a result of the expansion of the coronavirus that affects some 160 countries in the world, said the Governor of the Central Bank Héctor Valdez Albizu, at a press conference with other members of the Monetary Board, including the Superintendent of Banks, Luis Armando Asunción, and the Minister of Finance, Donald Guerrero.
Valdez Albizu read a document, the text of which is as follows:
“First of all, I want to thank the presence of the radio, written and television press, as well as the digital media, which have graciously welcomed our invitation to this press conference. Likewise, I take this opportunity to thank the presence and support of the Minister of Finance, Mr. Donald Guerrero and the Superintendent of Banks, Mr. Luis Armando Asunción, as well as the members of the Honorable Monetary Board, Manuel García Arévalo, Cesar Nicolás Penson, George Manuel Hazoury and Ricardo Rojas León.
Let me inform the country, through this meeting with different sectors of the press, the adoption of a series of measures aimed at guaranteeing the proper functioning of the Dominican economy in a complex international environment, characterized by a high level of uncertainty, as a result of the expansion of the coronavirus that affects about 160 countries in the world.
In this context and as mentioned by President Danilo Medina Sánchez, in his address to the country yesterday night, the Monetary Board and the Central Bank have adopted a set of measures aimed at reducing interest rates in the financial market, to provide liquidity to banks, both in national and foreign currency, and temporarily ease prudential regulations in the financial sector.
We are convinced that these measures will immediately and positively impact economic activity, favoring Dominican households, micro, small and medium-sized companies and the private sector in general. Likewise, they will create the conditions so that the debtors who face problems due to the prevailing crisis conditions as a result of the expansion of COVID-19, can meet their payment commitments.
Interest rate measures
First of all, I want to announce that the Open Market Operations Committee (COMA) of the Central Bank of the Dominican Republic, in an extraordinary monetary policy meeting held on Monday, March 16, decided:
1. Reduce the Monetary Policy Rate (TPM) by 100 basis points, from 4.50% to 3.50% per year, with the aim of encouraging a general decrease in interest rates in the financial system through the monetary policy transmission mechanism. .
2. Likewise, and with the purpose of providing liquidity at a low cost to financial institutions, a decrease of 150 basic points in the interest rate of the permanent liquidity expansion facility (overnight repos) was approved, passing from 6.00% to 4.50% annually.
3. Additionally, it was decided to reduce the interest rate on short-term interest-bearing deposits at the Central Bank (Overnight), from 3.00% to 2.50% per year. This measure contributes to reducing the interbank interest rate and, therefore, reduces the cost of funding for financial institutions.
Liquidity provision measures to the financial system
In addition to the interest rate cuts, a series of liquidity provision measures were adopted, both in national and foreign currency, with the aim of making a large amount of resources available to financial institutions in such a way that The demand for credit from the productive sectors and Dominican households can be effectively met. Specifically, in national currency we are making liquidity available to financial institutions for more than RD $ 52 billion through the following measures:
1. First, at a meeting held yesterday, Tuesday, March 17, the Monetary Board relaxed the coverage requirements for the legal reserve in national currency of financial entities, recognizing the titles of the Central Bank and the Ministry of Finance as coverage valid for an amount of up to RD $ 22,321.0 million, which represents 2.0 percentage points of the legal reserve ratio. Of this amount, RD $ 10 billion will be allocated to loans to households and to micro, small and medium-sized enterprises and to the trade sector, while the rest of the funds, some RD $ 12,321.0 million will be channeled to the productive sectors, mainly tourism and the export sector, at interest rates in all cases not greater than 8.0% per year.
It is important to highlight that the new loans granted by financial institutions with these resources will be classified as risk category A, with zero provisions, and will not be considered in the calculation of the solvency index.
2. Second, the Central Bank enabled the liquidity provision window to financial institutions through the Repos mechanism for up to 90 days for an amount of up to RD $ 30 billion, using collateral from the Central Bank and the Ministry of Finance as collateral. This facility would be available to financial institutions with interest rates of 4.75% for Repos up to 30 days and 5.0% for Repos between 31 and 90 days. These facilities could be renewed as long as the uncertain conditions that caused the measure persist.
Regarding the provision of liquidity in foreign currency, we have approved two measures that guarantee an adequate flow of dollars to cover the needs of the foreign exchange market, at a time when large sectors that generate foreign currency, such as tourism and the export sector, are seeing affected. In this sense, we are providing liquidity to the market for more than US $ 500 million, through the following mechanisms:
Inject liquidity in foreign currency for an amount of up to US $ 300.0 million, through 90-day repos, using securities from the Ministry of Finance as collateral.
Temporarily loosen the requirements for the legal reserve requirement in foreign currency of multiple banks, recognizing securities of the Ministry of Finance in dollars as valid coverage of US $ 222 million, which represents 2.5 percentage points of the legal reserve ratio. This measure will help facilitate the channeling of foreign exchange to generating sectors such as tourism and exports that have been impacted by the drop in trade and tourism flows globally.
Special regulatory treatment measures for the financial system
At its meeting yesterday, the Monetary Board also approved a series of measures that imply special regulatory treatment for the financial system while global uncertainty persists, associated with the economic effects caused by the coronavirus pandemic. Said special treatment would allow readjustment of the payment schedule of bank debtors if necessary, without additional regulatory costs arising from this action. These measures seek to avoid a possible deterioration of the credit portfolio due to the impact of COVID-19 on the performance of some productive activities.
Specifically, the measures adopted as part of the special regulatory treatment are:
1 Authorize financial entities to freeze the ratings and provisions of the debtors at the level they are at the time of the approval of the Resolution.
2. Authorize that credit restructuring that implies a modification in the payment conditions, interest rate, terms and installments, among others, can maintain the same risk rating of the debtor at the time of being restructured. In other words, this means that the debtor’s credit rating would not be reduced due to problems caused by payment arrears as a result of the current situation.
3. Authorize the disbursement of those loans disbursed against lines of credit for a period of sixty (60) days. This measure includes a waiver of the loan principal payment in that period, benefiting the debtor’s cash flow.
4. Extend for ninety (90) days the period granted to the debtor for the updating of guarantees corresponding to the appraisals. This measure will provide greater flexibility to the debtor who will have more time to comply with the requirement to update their guarantee.
It is important to highlight that this adverse situation finds the Dominican economy with strong macroeconomic fundamentals, reflected in growth around potential, low and stable inflation, dynamic credit to the private sector and high levels of international reserves, giving the country greater capacity of reaction to face the challenges derived from the economic effects of COVID-19.
In this context, preventive measures by the Central Bank, the Monetary Board and the Dominican Government will contribute to economic stability, giving security and certainty to private agents in such a way that a favorable environment is maintained to sustain the proper functioning of the economy and preserve the Dominican productive apparatus.
The Central Bank of the Dominican Republic and the Monetary Board reaffirm their commitment to conduct monetary policy towards maintaining macroeconomic stability and the proper functioning of the financial and payment systems. In this sense, the institution, as well as the entire Dominican Government, will continue to monitor the impact of the coronavirus and the other factors of uncertainty and its effects on the Dominican economy, being prepared to continue reacting in a timely manner to factors that may generate a deterioration in the employment and well-being of Dominicans.
Thank you.
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