~Aligning with Fed’s policy shift and supported by strong reserves~
Willemstad/Philipsburg:--- On September 22, 2025, the Centrale Bank van Curaçao en Sint Maarten (CBCS) eased its monetary policy stance by reducing the pledging rate by 25 basis points to 4.50%. This decision followed a reduction in the target range for the federal funds rate at the Federal Reserve’s (Fed) September meeting. The monetary union’s strong foreign exchange position, with reserves rising during the first eight months of the year and the import coverage well above the 3-month threshold, supported this decision. Nevertheless, a volatile global landscape, characterized by persistent trade tensions, increased trade fragmentation, and heightened geopolitical risks could drive higher import prices, putting pressure on foreign reserves. Given the prevailing uncertainties, the CBCS will continue to monitor both domestic and international economic developments and adjust monetary policy as necessary. The monetary union’s external position has strengthened in recent months. According to the latest outlook, the balance of payments is expected to improve in 2025, with the current account deficit narrowing from 16.4% of GDP in 2024 to 12.8% in 2025. This improvement reflects higher exports, notably in the tourism and transport sectors, a reduced oil import bill due to lower international oil prices, and stronger net current transfers from abroad. However, this narrowing is expected to be partially offset by rising merchandise imports, driven by robust tourism spending and domestic demand. In line with these developments, gross official reserves have also strengthened, increasing by Cg 216.0 million through September 1, 2025. By year-end, reserves are expected to have risen by Cg 160.5 million, as external financing and capital transfers are expected to exceed the current account deficit. Consequently, the average import coverage is projected to increase from 4.5 months in 2024 to 4.8 months in 2025, remaining well above the norm of 3 months. Despite these positive trends, risks to the outlook remain tilted to the downside. Heightened geopolitical tensions, including recent frictions between the U.S. and Venezuela, the war in Ukraine, and the conflict in the Middle East, pose threats to supply chains, commodity prices, and maritime security. These developments could drive up import costs and weigh on the monetary union’s external position. Moreover, global trade remains uncertain. U.S. tariff measures have disrupted supply chains and increased import costs. While recent U.S. trade deals with the EU, China, and Japan have eased near-term risks, doubts over enforcement and prolonged tensions could dampen global demand and investment. Trade fragmentation could also lead to less efficient supply chain structures, resulting in higher import costs in both Curaçao and Sint Maarten. In addition, the course of future monetary policy easing by the Fed remains uncertain, as any pause in the easing cycle could prolong tight global financial conditions. Against this backdrop, the CBCS has adjusted its monetary policy in line with the recent policy shift by the Fed. On September 17, 2025, the Fed lowered its target range to 4.00–4.25%, based on a moderation in U.S. economic activity, weakening labor market conditions, despite a still elevated inflation rate. Similarly, the CBCS has decided to reduce its pledging rate to 4.50%, supported by the monetary union’s solid foreign exchange position and a careful assessment of global developments. The pledging rate is the rate at which commercial banks can borrow from the CBCS in case of a liquidity shortage. At the same time, the CBCS will maintain the reserve requirement percentage unchanged at 18.50%. Moreover, it will continue to offer attractive rates on its weekly auctions of certificates of deposit (CDs), with the aim of holding more bank liquidity domestically, and thereby safeguarding the monetary union’s foreign exchange position. The decisions on the monetary policy stance and the use of monetary policy instruments are taken by the Monetary Policy Committee, which the Executive Board of Directors ratifies. As of July 1st, 2025, the committee is chaired by the President of the CBCS, Richard Doornbosch. In addition, Professor dr. Jakob de Haan, a distinguished scholar and policymaker who currently serves as professor of Political Economy at the University of Groningen, has joined the committee as an external member. The support of Professor Dr. de Haan will contribute to strengthening the decision-making process and provide valuable insights into monetary policy challenges.
Willemstad, September 23, 2025
CENTRALE BANK VAN CURACAO EN SINT MAARTEN
