SANTO DOMINGO. - The value of the Dominican peso rose 3.9% against the dollar so far this year and it’s expected to continue that increase, said Bear Stearns analyst Frank Ucelli. "Therefore, we think that a strong rate of exchange will continue to make investment in the Dominican local market attractive for foreign investors."
The peso's exchange rate today is RD$32.60 per dollar and banks and moneychangers buy dollars at RD$31.90.
Ucelli, in a report released on Tuesday, says investing in the country is more a gamble on the exchange than a play based on the commercial rates. "After reaching historical records of depreciation, we believe that additional positive aspects with respect to the local rates of return are somewhat limited.".
He said the climate for investment becomes more interesting when taking into account "foreign capital (exports, remittances, tourism) that is expected to remain strong, and a very strict monetary policy in effect."
He said order has been recovered in the Dominican Republic’s monetary accounts whereas the general macroeconomic conditions have improved, though reference rates have undergone a strong decline in the financial instruments of the Central Bank, especially the zero coupon, the favorite of institutional investors.
Ucelli says the rate of return fell to 9.35% from 12.5% at the start of the year and from 15.7% a year ago.
"Without a doubt the tendency has been that the production of papers that pay wholesale at one year, which are negotiated, converges towards the rates that pay the papers at 12 months of retail sales, which are issued by the Central Bank. With the rates of retail papers of one year at 9%, we think that it’s only a question of time before the institutional rates reach those levels."
The reduction in the rates of return – he argues- is partially compensated from the foreign investors’ perspective, by the revaluation of the Dominican peso.