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Saturday 18 June 2022 locAl
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            The reserve requirement was raised by two percentage points as

            of the 1st of May 2022

            in order to further mop up commercial banks’ excess liquidity



            During  its  meeting  of  April                                                                                     continued  subdued  credit
            13, 2022, the Monetary Poli-                                                                                        demand at local commer-
            cy Committee (MPC) of the                                                                                           cial banks, in addition to a
            Centrale  Bank  van  Aruba                                                                                          heightened  level  of  liquid
            (CBA) decided to raise the                                                                                          funds  held  by  commercial
            reserve  requirement  rate                                                                                          banks.
            from  18.0  percent  to  20.0
            percent as of May 1st, 2022.                                                                                        Credit developments
            This  decision  was  primarily                                                                                      In  February  2022,  total
            based on the persistent el-                                                                                         credit  of  the  commercial
            evated  level  of  excess  li-                                                                                      banks  contracted  by  Afl.
            quidity  at  the  commercial                                                                                        43.6  million  or  1.1  percent
            banks, as well as the con-                                                                                          to Afl. 3,781.3 million, when
            tinued  rise  in  inflationary                                                                                      compared  to  December
            pressures.                                                                                                          2021. This decline was most-
                                                                                                                                ly caused by a downturn in
            The  following  information                                                                                         ‘business  loans’  (Afl.  31.0
            and  analysis  were  consid-                                                                                        million/2.1  percent),  which
            ered in reaching this deci-                                                                                         largely  resulted  from  dwin-
            sion:                                                                                                               dling term loans with a ma-
                                                                                                                                turity  longer  than  2  years
            International reserves                                                                                              (Afl.  34.7  million/4.2  per-
            International reserves, com-                                                                                        cent) and current account
            prising  the  official  reserves                                                                                    loans  (Afl.  12.3  million/8.2
            of  the  CBA  and  foreign                                                                                          percent).  Furthermore,  the
            exchange  reserves  held                                                                                            component  ‘other’  put
            by  the  commercial  banks,  stay well-above the bench-   es’  (0.3  percentage  point  year-over-year  basis  and  downward     pressure   on
            strengthened  by  Afl.  362.2  mark of 3 months of current  contribution), ‘clothing and  0.3  percent  on  12-month  overall  credit  during  the
            million. The component of-   account payments (includ-    footwear’ (0.2 percentage  average basis.                 period  under  review,  as  it
            ficial  reserves  (including  ing oil) for the remainder of  point  contribution),  ‘res-                           declined  by  Afl.  14.1  mil-
            revaluation  differences  of  2022.  Official  reserves  will  taurant  and  hotels’  (0.2  Commercial bank liquidity  lion or 3.3 percent. For the
            gold and foreign exchange  also stay within an accept-    percentage  point  contri-   Aggregated  excess  liquid-  remainder of 2022, credit is
            holdings) grew by Afl. 319.7  able  range  if  the  IMF  ARA  bution),  and  ‘housing’  (0.1  ity fell from Afl. 1,320.5 mil-  expected to stay relatively
            million  on  March  25,  2022,  metric is applied.        percentage  point  contri-   lion  in  December  2021  to  flat.
            compared to end-Decem-                                    bution).  The  12-month  av-  Afl. 1,271.0 million in Febru-
            ber  2021.  Consequently,  Inflation                      erage  inflation  for  Febru-  ary 2022. This drop in excess  Developments in commer-
            on  March  25,  2022,  the  In February 2022, the year-   ary  2022  climbed  to  1.7  liquidity  was  mainly  due  cial bank deposits
            official  reserves  and  the  over-year  CPI  rose  by  3.5  percent,  and  is  expected  to  the  one  percentage  In  February  2022,  overall
            international  reserves  (in-  percent, compared to the  to  continue  to  increase  point  uptick  in  the  reserve  deposits  stood  at  a  level
            cluding  revaluation  differ-  corresponding  month  a  throughout  2022.  This  ex-   requirement  on  the  1st  of  of Afl. 5,073.4 million, down
            ences of gold  and  foreign  year  earlier,  up  from  3.3  pectation  is  based  on  the  January  2022  and,  subse-  marginally from Afl. 5,079.0
            exchange  holdings)  stood  percent end-January 2022.  rising price level particularly  quently,  another  one  per-  million  registered  at  De-
            at  Afl.  3,064.6  million  and  This hike was caused mainly  in  the  United  States  and  centage  point  increase  in  cember 2021. Time deposits
            Afl.  3,491.8  million,  respec-  by gasoline prices, impact-  Europe,  which  is  the  result  the reserve requirement on  lessened by Afl. 69.7 million
            tively. For the remainder of  ing  thereby  the  ‘transport’  of  (1)  the  war  in  Ukraine,  the  1st  of  February  2022.  compared  to  December
            2022,  further  expansions  in  component  (+1.5  percent-  and  (2)  the  ongoing  logis-  Nevertheless,  the  level  of  2021.  On  the  other  hand,
            international  reserves  are  age  points  contribution).  tical  problems  hampering  excess  liquidity  remained  both demand deposits (Afl.
            likely on account of foreign  Gains in other components  production and the supply  significantly  above  pre-      59.2  million)  and  savings
            exchange     inflows   from  also drove up inflation, i.e.,  chain.  Meanwhile,  in  Feb-  pandemic  levels.  The  el-  (Afl.  4.8  million)  climbed  in
            tourism  activities,  foreign  ‘household  operation’  (0.3  ruary  2022,  core  inflation  evated  level  of  excess  li-  February 2022.
            borrowings, and foreign di-  percentage  point  contri-   reached  1.8  percent  on  a  quidity  is  the  result  of  the
            rect investments.            bution),  ‘recreation  and
                                         culture’  (0.3  percentage
            As a result, international re-  point contribution), ‘miscel-
            serves  are  anticipated  to  laneous  goods  and  servic-
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