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LOCAL Tuesday 21 March 2023

The CBA maintained the reserve requirement

rate at 25.5 percent as of February 1, 2023

In line with the Monetary 2021 (Graph 1). Official re- component (2.7 percent-
Policy Committee’s (MPC) serves expanded by Afl. age points contribution).
task to evaluate, deter- 46.0 million, while the for- Moreover, gasoline prices
mine, and provide trans- eign reserves at the com- surged, mainly impacting
parency on the monetary mercial banks widened the ‘transport’ component
policy actions of the Cen- by Afl. 65.6 million. Conse- (1.7 percentage points
tral Bank of Aruba (CBA), quently, as of December contribution), while prices
the CBA communicates the 30, 2022, official and inter- in the ‘food and non-alco-
following. national reserves amount- holic beverages’ compo-
ed to Afl. 2,790.9 million nent also accelerated (1.4
During its meeting on Janu- and Afl. 3,241.2 million, re- percentage points contri-
ary 13, 2023, the MPC de- spectively. bution).
cided to maintain the re-
serve requirement rate at Maintaining reserve ad- The 12-month average in-
25.5 percent as of February equacy is critical to keep- flation rose to 5.3 percent,
1, 2023. Accordingly, com- ing the fixed exchange up from 5.1 percent in Oc-
mercial banks must hold a rate between the Aruban tober 2022. The inflationary
minimum balance at the florin and the US dollar. In pressures were due to the
CBA equal to 25.5 percent this regard, international re- elevated oil price in inter- ber 2022 (Graph 3). This ertheless, excess liquidity
of their clients’ short-term serves remained comfort- national markets, as well as drop was principally due remained above the pre-
deposits. The decision to ably above the minimum the hikes in water and elec- to consecutive hikes in the pandemic level of Febru-
maintain the reserve re- required three months of tricity tariffs as of August reserve requirement from ary 2020 (+Afl. 98.7 million),
quirement rate at 25.5 current account payments 2022. Furthermore, Aruba January 2022 up to and and higher than the level
percent was based on the during 2022. Current ac- imported much of the soar- including July 2022. More- that the commercial banks
steady decrease in the ex- count payments consist, ing prices from its export over, preliminary estimates may wish to hold as a safe-
cess liquidity held at com- among others, of import partners, particularly the based on weekly data for guard. When excluding un-
mercial banks, albeit at a payments, interest pay- United States and Europe. December 2022 showed a disbursed loan funds and
lower pace, since July 2022. ments made to investors, further contraction in ex- other commitments excess
The CBA will continue to and foreign transfers such Meanwhile, in November cess liquidity. End Decem- liquidity still stood at an es-
monitor the developments as money remittances by 2022EOP core inflation (ex- ber 2022, excess liquidity is timated Afl. 309.4 million in
of excess liquidity in the foreign workers. Official re- cluding energy and food) estimated to have fallen December 2022. q
coming months and stands serves also stayed within reached 2.2 percent. On to Afl. 787.8 million. Nev-
ready to again change the an adequate range when a twelve-month average
reserve requirement rate, if benchmarked against the basis, core inflation also
deemed necessary. International Monetary amounted to 2.2 percent.
Fund’s (IMF) Assessing Re-
The MPC considered the serve Adequacy (ARA) Commercial bank excess
following information and metric (Table 1). liquidity
analysis during its delibera- Aggregated excess liquid-
tions: Inflation ity fell from Afl. 1,320.5 mil-
In November 2022, the End- lion in December 2021 to
International and official of-Period (EOP) inflation Afl. 796.9 million in Novem-
reserves rate fell from 7.0 percent
The international reserves, in the previous month to
comprising the official re- 6.6 percent (Graph 2). The
serves of the CBA and for- jump in the consumer price
eign reserves held by the index (CPI) compared to
commercial banks, grew the same month of the pre-
by Afl. 111.6 million as of vious year was caused by
December 30, 2022, com- higher utility prices, which
pared to end-December affected the ‘housing’