Dominican Republic Peso Set to Depreciate on the Back of Lacklustre Growth

  • The Dominican peso is expected to weaken by a further 3.9% in 2026 to end the year at DOP66.5/1USD, after falling by nearly 6.0% in the year-to-mid-December. The peso's depreciation in 2025 exceeds both pre-pandemic and more recent depreciation trends, with the currency reaching its all-time weakest level in 2025.
  • This weakness comes on the back of lacklustre domestic growth, projected at just 2.5% in 2025 compared to 5.0% in 2024, and a narrowing Dominican Republic-United States (U.S.) policy rate differential. The differential has fallen by 275 basis points (bps) since December 2023, reducing the attractiveness of peso-denominated assets and putting downward pressure on the peso.
  • Furthermore, following below-trend growth in the first half of 2025 (H1 2025), high-frequency GDP prints point to continued economic weakness, with zero growth in October following month-on-month contractions in the previous two months. Notably, most of 2025's depreciation has occurred in the second half of the year, with the peso falling nearly 8.0% from July 1 to December 8, after briefly and sharply strengthening in the second quarter (Q2) against a weaker U.S. dollar amid the onset of the trade war.
  • Looking ahead, BMI analysts expect the Dominican peso to continue to depreciate in 2026, driven by weakness in tourism, a structural goods deficit, and a persistently narrow Dominican-U.S. interest rate differential.
  • The Dominican peso's strength is closely tied to the policy rate differential between the US Federal Reserve and the Banco Central de la República Dominicana (BCRD), with a 1.0 percentage point decrease in the Dominican-U.S. policy rate differential associated with a 0.76% depreciation of the Dominican peso.
  • With the BCRD expected to cut its policy rate by an additional 50bps in 2026 to support a sputtering domestic economy, alongside an expected 50bps reduction in the US federal funds rate in 2026, BMI anticipates that a persistently narrow policy rate differential will continue to weigh on the currency in the near term. The interest rate differential is projected to remain at 125bps in 2026, the lowest on record, which will be a headwind for the peso.

(Source: BMI, A Fitch Solutions Company)