Credit freeze not having desired effect

POSTED: 06/27/12 12:43 PM

WILLEMSTAD/GREAT BAY – The Central Bank of Curacao and St. Maarten (CBCS) increased the reserve requirement for commercial banks by 0.25 percent in May. The new reserve requirement is 11.25 percent. The bank chose to use this measure because while a six month freeze on private lending has led to a restriction on the growth of private lending and thereby the growth of domestic spending and imports, it has had no effect on the over liquidity in the money market.
Increasing the reserve requirement is one of the central bank’s main monetary policy instruments. They’ve chosen not to use auctions of Certificates of Deposit (CDs), which is another option. The bank focused on refinancing maturing CDs in the last two weekly auctions and thus the amount of outstanding CDs remains unchanged.
The basic money supply rose by 230.4 million guilders mainly due to a net increase in current account balances at the central bank of commercial banks (224.8 million guilders). The increase in current account balances was partially the result of monies received from the Dutch government in connection with the redemption of bonds and interest payments. In addition, the Curaçao government transferred money from its account at the bank in favor of its accounts with commercial banks. The latter also explains the 118.2 million guilder decrease in the item “Liabilities to the public”.
The central bank also points out that the 22.4 million guilder increase in deposits of other residents was largely the result of a payment by the Dutch Ministry of the Interior and Kingdom Relations (BZK) at the Apna.
The item “Foreign exchange” increased by162.1 million guilders because of other payments by the Dutch government for the repayment and interest payments associated with the acquired loans. The net sales of foreign exchange by commercial banks to the central bank also contributed to the increase.
Gold decreased by70.2 million guilders due to lower market value and this has lead to a decrease in the item “Capital and reserves” on the liabilities side of the balance sheet.

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