What the latest CBCS rate cut means: Cheaper backup funding for banks, risks still watchlisted

GREAT BAY--The Central Bank of Curaçao and St. Maarten (CBCS) has lowered one of its key interest rates again, the second time it has done so this year. This move matters because it affects how expensive it is for local commercial banks to get emergency cash from the Central Bank, and that can influence borrowing conditions in the wider economy. In other words, the lowering of the rate could lower interest rates for businesses and consumers, encouraging spending, investment, and economic growth, and aiming to boost low inflation.

What the CBCS changed

• The CBCS cut the pledging rate by 0.25 percentage points, bringing it down to 4.25%. This is the second cut in 2025.
• The pledging rate is basically the rate banks pay if they need to borrow from the Central Bank when they have a liquidity shortage. When this rate drops, it can make it slightly easier or cheaper for banks to access short-term funds.

Why they say they did it

CBCS says it is aligning with what is happening in the United States. The U.S. Federal Reserve lowered its policy rate in December 2025, and the CBCS followed by easing its own stance, while keeping its rate still about 0.50% higher than the U.S. level.

They also say they can afford to ease a bit because the region’s foreign currency position is strong. The CBCS reports that official reserves increased significantly in 2025, and the country has enough reserves to cover roughly 4.8 months of imports, which is above the typical 3-month benchmark.

What the numbers are saying about the economy

CBCS estimates the external situation improved in 2025:

• The current account deficit narrowed from 16.4% of GDP in 2024 to 11.4% in 2025, helped by more foreign currency earnings from tourism and transportation services, and lower imports, including lower oil imports tied to lower average crude prices in 2025.
• Reserves rose by Cg 274.4 million through November 14, 2025, and by year-end they expect reserves to have increased by Cg 230.9 million.
• Looking ahead, CBCS projects the deficit could narrow further in 2026, with import coverage rising to about 4.9 months.

What they are worried about

Even with the rate cut, the CBCS says the risks are still serious. They point to:

• Regional geopolitical tension, including the risk that tensions between the United States and Venezuela could disrupt maritime security, trade, and raise shipping and insurance costs, and could hurt tourism and investor confidence if the Caribbean is seen as less safe.
• Global risks like the war in Ukraine, conflict in the Middle East, and uncertainty around trade policy and tariffs that could raise import costs.
• Local risks such as climate shocks, delays in public investment, and unresolved AML/CFT weaknesses that could disrupt financial activity, plus rising long-term pressure from aging populations and health costs.

What they did not change

CBCS kept some tighter controls in place:

• The reserve requirement stays at 18.50%, meaning banks must keep a set share of funds parked as required reserves.
• CBCS will keep offering attractive rates on its weekly certificate of deposit (CD) auctions to encourage banks to keep more liquidity domestically, helping protect foreign exchange reserves.

What this means for you

This rate cut does not automatically lower your loan or credit card rate tomorrow, but it can make it cheaper for local banks to access backup funding from the Central Bank when they need it. Over time, that can support smoother banking operations and may reduce pressure that can lead to tighter lending. The Central Bank is still being cautious, keeping other controls in place and warning that external shocks, like geopolitical tension, higher import costs, or tourism disruptions, could still affect prices and the economy.

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