Willemstad/Philipsburg:--- The Centrale Bank van Curaçao en Sint Maarten (CBCS) will maintain its current monetary policy stance given the present solid foreign exchange position and import coverage in the monetary union. Nevertheless, the Monetary Policy Committee (MPC) of the CBCS will continue to closely monitor the economic developments in the monetary union, in particular the key indicators for monetary policy, and if necessary, adjust the monetary policy stance.
Since the second half of 2021, the economies of Curaçao and Sint Maarten are showing signs of a recovery driven primarily by a strong rebound in tourism activities. Against this background, the CBCS currently projects that real GDP will expand by 6.1% in Curaçao and 14.3% in Sint Maarten in 2022. The 2022 economic outlook has been revised downward for both countries compared to the outlook presented in December 2021 as a higher than previously projected inflation will
curb disposable income and, hence, affect private consumption. The higher inflation reflects primarily soaring international commodity prices and supply chain bottlenecks that are likely to persist in 2022.
“At the same time, the foreign exchange position of the monetary union is solid. Since the end of 2019, gross official reserves (excluding gold) have been showing a steadily increasing trend despite the deep economic contraction caused by the COVID-19 pandemic”, according to José Jardim, CBCS Executive Director and Chairman of the MPC. The main reasons behind this trend are (1) the liquidity support received from the Netherlands related to the pandemic; (2) the transfers from the
World Bank related to the reconstruction of Sint Maarten after Hurricane Irma; and (3) the loan that the government of Curaçao received from the Dutch State for the controlled winding-up of Girobank N.V. Currently, the import coverage stands at 7.1 months, which is well-above the norm of 3 months. The exceptionally high import coverage reflects the high level of gross official reserves and the still lower level of import of goods and services than before the COVID-19 crisis.
Meanwhile, the liquidity of the commercial banks has seen an increasing trend since the end of 2019 and shows no signs of declining in the near term. However, credit extension to the private sector grew moderately in 2021 by an annual average of 1.3% owing entirely to the growth in mortgage loans.
Against this background, the CBCS decided to maintain its current monetary policy stance. Hence, the reserve requirement will remain at 19.00%, the lending rate at 1.0%, and the MPC will not pursue absorbing more liquidity in the weekly auctions of Certificates of Deposit (CDs) among the local commercial banks.
Nevertheless, the risks to the economic outlook for the monetary union are substantial and primarily tilted to the downside. The recent invasion of Ukraine by Russia could exacerbate supply chain bottlenecks and push commodity prices, particularly of crude oil and grain products, even higher. This would further fuel inflation in Curaçao and Sint Maarten and might also affect the import coverage through more expensive imports. On the other hand, commercial banks and institutional investors could become less inclined to invest abroad due to increased uncertainties in the international financial markets. Other downside risks to the outlook include the path of the pandemic with the emergence of new variants and strong fiscal consolidation without room for public investments. “Given these high uncertainties, the MPC will continue to monitor the developments closely and adjust the monetary policy stance if necessary”, concluded Jardim.
Willemstad March 29, 2022
CENTRALE BANK VAN CURACAO EN SINT MAARTEN
