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a8 local
Thursday 20 January 2022

The reserve requirement rate was increased to 13.0 percent

on January 1st, 2022

ORANJESTAD - During its meeting of De- inflows of foreign exchange reserves at- loans’ (-Afl. 46.9 million/-3.1 tal liquid funds held by the
cember 10, 2021, and after reviewing the tributed to tourism services and loans from percent) and ‘loans to commercial banks. Conse-
most recent economic and monetary the Government of the Netherlands pro- individuals’ (-Afl. 25.0 mil- quently, the level of excess
data, the Monetary Policy Committee vided to the Government of Aruba (GoA) lion/-1.3 percent). The drop liquidity remained high and
(MPC) of the Centrale Bank van Aruba to improve its liquidity position. Meanwhile, in the category ‘loans to is significantly above pre-
(CBA) decided to raise the reserve re- official reserves increased by Afl. 330.7 mil- individuals’ was driven by pandemic levels.
quirement rate from 12.0 percent to 13.0 lion. Consequently, the official and inter- a decrease in ‘consumer
percent as of January 1st, 2022. This deci- national reserves reached, respectively, credit’, while the category The ample excess liquid-
sion was primarily based on the elevated Afl. 2,538.6 million and Afl. 2,918.1 as of No- ‘business loans’ was for the ity is partly the result of the
level of excess liquidity at the commercial vember 19, 2021 (Graph 1). most part impacted by less reductions in the reserve
banks. current account loans. requirement rate and the
Accordingly, the level of reserves re- minimum prudential liquid-
The following information and analysis mained adequate when benchmarked Inflation ity ratio as of March and
were considered in reaching this decision: against the current account payments In October 2021, the Con- April 2020, forming part of
and the IMF ARA metric (Table 1). sumer Price Index (CPI) the monetary and pruden-
International reserves rose by 2.4 percent, com- tial policy domains relief
International reserves (including revalu- pared to the correspond- measures taken by the CBA
ation differences of gold and foreign ex- Credit developments ing month a year earlier. to mitigate the effects of
change holdings), up to and including No- In October 2021, total credit of the bank- The twelve-month average the COVID-19 pandemic.
vember 19, 2021, increased by Afl. 561.5 ing sector contracted by Afl. 88.9 mil- inflation rate amounted Furthermore, the continued
million compared to the end of December lion or 2.2 percent to Afl. 3,875.2 million, to -0.3 percent in October subdued credit demand is
2020. The notable expansion in the interna- when compared to the end of 2020. This 2021, 0.4 percentage point an additional contributing
tional reserves was mostly the result of net was driven by the categories ‘business higher than the previous factor to the commercial
month (Graph 2) . The rise banks’ excess liquidity, and
in the CPI compared to likely so were the wage
a year earlier was mainly subsidy and FASE programs
the result of upward price of the GoA to counterar-
movements in the com- rest the economic effects
ponents ‘transport’ and of the COVID-19 crisis.
‘household operation’. The
former was related to the Consequently, the pru-
oil price hike resulting in a dential liquidity ratio of the
higher gasoline price, while commercial banks, which
the latter was likely due to measures the percentage
global supply chain issues. of their liquid assets to their
total net assets, remained
Commercial bank liquidity at a comfortable level of
The aggregate excess li- 28.4 percent in October
quidity of commercial 2021, far above the mini-
banks rose to Afl. 1,295.8 mum required prudential
million in October 2021, liquidity ratio of 18.0 per-
compared to Afl. 1,107.4 cent.
million in December 2020.
The monthly comparison Anticipated outflows due
showed, however, that the to the de-escalation initia-
aggregated excess liquidi- tives by the CBA
ty declined from Afl. 1,308.3 Despite the comfortable
million in September 2021 level of official and interna-
to Afl. 1,295.8 millions in Oc- tional reserves, the CBA an-
tober 2021. This contraction ticipates an increase in for-
was the result of the expan- eign exchange payments
sion of the reserve require- as a result of the lifting, as
ment rate from 9.0 percent per September 2021, of the
to 10.0 percent as of Oc- COVID-19 induced foreign
tober 1, 2021. The uptick exchange restrictions. The
in the reserve requirement latest estimates show an
rate was, however, miti- outflow of Afl. 260.0 million
gated by a surge in the to- by year-end 2021. q