WILLEMSTAD - The comfortable import coverage of over 5 months and the low growth rate of private credit induced the Bank to gradually phase out the outstanding CDs as of mid-August 2017. As a result, by the end of 2018, there were no more outstanding CDs and the auctions were suspended temporarily. However, in light of the downward trend in gross official reserves and the import coverage, the Bank decided to tighten its monetary policy by offering CDs again in both guilders (NAf.) and US dollars to the commercial banks through biweekly auctions as of mid-August 2019. Consequently, the outstanding amount of CDs rose to NAf.124.8 million at the end of December 2019.
At the end of January 2020, the Bank introduced some reforms of the CD auctions. These reforms were based on recommendations by a technical assistance mission of the IMF on the monetary policy instruments of the Bank that took place by the end of 2019. Weekly auctions of CDs with a term of 2 weeks were introduced in which the Bank announces the interest rate it is willing to pay and the banks can subscribe at any amount that will be fully accepted. These CDs replaced the 4-week CDs. In addition, the Bank continued its biweekly auctions of CDs with terms of 12, 26, and 52 weeks. In these auctions, the Bank announces the total amount of liquidity it wants to absorb and the banks indicate for what amounts, terms, and interest rates they are prepared to subscribe. At the end of October 2020, the total outstanding amount of CDs was NAf.126.0 million.
Meanwhile, the reserve requirement percentage was increased from 18.00% to 19.00% in February 20206 to absorb part of the excess liquidity of the banks that was not mopped up because the subscriptions on the CD auctions fell short of the targeted amounts.
Because the economic outlook for the monetary union of Curaçao and Sint Maarten deteriorated significantly due to the impact of the COVID-19 pandemic, the Bank deemed it necessary to take steps to enable the financial system to continue to provide financing to keep the economy running through these extremely difficult times. Therefore, on March 20, 2020, the Bank reduced the pledging rate by 150 basis points. As a result, the pledging rate was back at the 2008-2016 historical low level of 1.00 percent. Furthermore, the surcharge on the pledging rate of 200 basis points on loans exceeding NAf.20.0 million was suspended. In addition, the Bank decided to lower the interest rates it is willing to pay on CDs to stimulate the banks to hold more funds liquid to be able to meet the liquidity demand from their clients related to the impact of the COVID-19 virus pandemic Broad money remained practically unchanged in 2019 compared to 2018 as the increase in net foreign assets (3.8%) was offset by a decline in net domestic assets (-5.4%). During the first seven months of 2020, broad money rose by 1.2% driven by an increase in net foreign assets (11.8%) moderated by a decline in net domestic assets (-14.7%).
Meanwhile, up to July 2020, private credit extension in the monetary union grew by 1.6% on an annual basis as outstanding loans increased in both Curaçao (1.3%) and Sint Maarten (2.7%). The increase in credit extended in Curaçao stemmed from a rise in mortgages (3.5%), business loans (0.1%) and the “other” loan category (3.9%), while consumer loans dropped (-0.8%).