Willemstad/Philipsburg – The Centrale Bank van Curaçao en Sint Maarten (CBCS) decided to pause monetary policy easing by keeping both the pledging rate1 and the reserve requirement percentage unchanged. Consequently, the pledging rate will remain at 4.75% and the reserve requirement percentage at 18.50%.
This decision follows a previous 0.50 percentage point reduction in both instruments in November 2024, supported by the solid and stable foreign exchange position and adequate import coverage in the monetary union. The decision to keep the pledging rate unchanged is based on increased uncertainty in global trade and financial markets and the decision by the Federal Reserve (Fed) to maintain its policy rate so far this year.
“Although domestic economic and monetary indicators are moving in line with expectations, downside risks to the outlook have increased, especially due to heightened risks associated with an intensification of protectionist trade policies. Therefore, the CBCS remains cautious and will continue to closely monitor domestic and international economic developments, particularly the key monetary policy indicators within the union, and adjust its policy as needed”, stated executive director, Dr. José Jardim.
According to the latest estimate, the current account deficit of the balance of payments as a percentage of GDP increased from 15.8% in 2023 to 16.5% in 2024, due mainly to a decrease in net export of goods and services. Net exports dropped because the increase in imports, driven primarily by ongoing investments across the monetary union, outpaced the growth in exports. Exports grew, reflecting foreign exchange receipts from the tourism and transportation sectors in both Curaçao and Sint Maarten. The current account deficit is projected to narrow to 13.7% of GDP in 2025. The lower deficit in 2025 compared to 2024 is mainly attributed to an increase in the net export of goods and services, driven by a growth in exports combined with a lower import bill. Exports are expected to grow in 2025, supported by increased foreign exchange revenues,
primarily from tourism activities across the monetary union. Meanwhile, the projected decline in international crude oil prices will result in a lower import bill.
So far, the monetary indicators are moving in line with expectations. “Despite the current account deficit, gross official reserves increased by NAf.63.4 million in 2024, and as of March 4, 2025, by NAf.176.7 million in 2025. Meanwhile, the import coverage rose from 4.5 months at the end of 2023 to 4.6 months in December 2024 and reached 4.8 months in February 2025, remaining well above the norm of three months. Furthermore, following an increase in 2023, the liquidity of commercial banks experienced a gradual decline in 2024, a trend that has continued during the first two months of 2025”, he explained.
1 The pledging rate is the rate at which commercial banks can borrow at the CBCS in case of a liquidity shortage.
Nevertheless, the CBCS has decided to keep the pledging rate at 4.75%, as the U.S. Federal Reserve (Fed) has kept its policy rate unchanged at 4.50% so far this year. The pause in monetary easing by the Fed is the result of, among other things, increased uncertainty in global trade and financial markets following the intensification of protectionist trade policies by the U.S. administration. By maintaining its current policy stance, the Fed signals a cautious approach aimed at balancing
economic growth and inflation risks, ensuring a smooth transition toward monetary easing when appropriate. “Given the likelihood of the Fed holding rates steady, interest rates in the international money market are expected to decline at a slower pace in 2025. Consequently, this will affect interest rates in the money market of the monetary union of Curaçao and Sint Maarten, considering the peg of the NAf. to the U.S. dollar”, Dr. Jardim highlighted.
In addition, following a 0.50 percentage point reduction effective December 16, 2024, the reserve requirement percentage will be kept at 18.50% in the short term. “Although gross official reserves are projected to continue growing in 2025, albeit at a slower pace than in 2024, risks to the forecast are tilted to the downside. In particular, increased trade protectionism, notably through higher tariffs in the U.S., could trigger retaliatory measures from its trading partners, potentially leading to a trade war. Such developments could result in higher import prices for Curaçao and Sint Maarten. Given the two countries’ high dependence on imports, rising prices may lead to a net purchase of foreign exchange and a net withdrawal of dollar balances, thereby affecting gross official reserves”, he explained.
“The CBCS will, however, continue to offer attractive rates on its weekly auctions of CDs with the aim to hold more bank liquidity domestically to support the preservation of a solid foreign exchange position”, Dr. Jardim concluded.
