During its meeting of April 1, 2021 and after reviewing the most recent economic and monetary data, the Monetary Policy Committee (MPC) of the Centrale Bank van Aruba (CBA) decided to keep the reserve requirement at 7.0 percent. The reserve requirement refers to the minimum amount of reserves that commercial banks must hold at the CBA and is equal to 7.0 percent of their liabilities with a maturity less than 2 years. The following information and analysis were considered in reaching this decision.
International reserves
International reserves (including revaluation differences of gold and foreign exchange holdings), up to and including March 19, 2021, strengthened by Afl. 24.3 million compared to the end of December 2020. This expansion was primarily the result of external financing received by the government, inflows related to tourism services, and other external financing received by the private sector. Meanwhile, official reserves decreased by Afl. 39.3 million. Consequently, the official and international reserves reached, respectively, Afl. 2,163.9 million and Afl. 2,377.6 million as of March 19, 2021. Accordingly, the level of reserves remained adequate when benchmarked against the current account payments and the IMF ARA metric.
Credit developments
In February 2021, total credit contracted by Afl. 12.7 million or 0.3 percent, when compared to the end of 2020. This was driven by the categories ‘loans to individuals’ (-Afl. 12.6 million/-0.7 percent) and ‘other’ (-Afl. 3.8 million/-0.7 percent). The category ‘loans to individuals’ was mostly influenced by a lower demand in consumer credit. Meanwhile, other investments and accounts receivable and prepayments held at the commercial banks negatively impacted the category ‘other’. On the other hand, business loans rose up by 0.2 percent, driven by a rise in current account loans expansions.
Inflation
The CPI was 1.9 percent lower in February 2021, compared to the corresponding month a year earlier. This was mainly attributed to lower prices in the categories ‘recreation and culture’, ‘household operation’, and ‘transport’. The 12-month average inflation rate continued its downward trend reaching -2.2 percent in February 2021. When excluding energy and food, the 12-month average core inflation rate stood at -0.7 percent in February 2021.
The prudential liquidity of commercial banks (34.5 percent), which measures the amount of their liquid assets to their total net assets, remained at a comfortable level in February 2021, far above the minimum required prudential liquidity ratio (15.0 percent).
