Central Bank increases reserve requirement

POSTED: 09/18/11 11:12 PM

WILLEMSTAD/GREAT BAY – The Central Bank of Curaçao and St. Maarten has raised the percentage of it’s the minimum reserve requirement from 7.75 percent to 9.75 percent. The regulation took effect Friday and is aimed at the commercial banks, who must keep a certain percentage of their local minimum reserve requirement on a blocked account at the Central Bank.

The Central Bank decided to implement an increase because the monetary union between Curaçao and St. Maarten is confronted with critical developments on the balance of payments. One of the issues is the deficit on the current account in both countries has increased, economic growth in both countries has congested and the credit loan is growing faster than economic activities. All these factors have led to extra pressure on the balance of payment and a falling trend in foreign exchange reserve. That fall in foreign reserve can undermine the stability of the guilder on the long-term.

“By means of this increase the Bank aims at shortening the space on the money market. This way the growth of the credit loan is moderate to limit the worsening of the current account and the decline in the foreign exchange reserve, guaranteeing the stability of the guilder,” the Central Bank’s leadership wrote in a statement.

The minimum reserve requirement percentage, which is the Central Bank’s main monetary policy instrument, is determined based on a number of economic and monetary quantities under which the import cover, the economic growth and local credit loan growth.

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