We expect the CBCS to raise interest rates this year to combat inflation and respond to monetary tightening by the Federal Reserve (Fed, the US central bank). In November the CBCS raised the pledging rate by 125 basis points to 4.75%. We expect the central bank to continue to raise interest rates in the first half of 2023, in line with the Fed (we currently forecast that the federal funds rate will peak at 4.50-4.75% by February), but monetary transmission mechanisms are weak, and the CBCS's interest-rate decisions have only a limited impact on economic performance. The reserve requirement is the main monetary policy instrument and currently stands at 19%. If Curaçao's economic recovery proves slower than we expect, the CBCS will probably loosen this requirement to stimulate credit growth.

Reforming the currency union, introducing a new currency (the Caribbean guilder), and splitting Curaçao and Sint Maarten's shared central bank will remain medium- to long-term goals, but little progress will be made in the short term, as the focus is on more pressing concerns, such as the post-pandemic economic recovery. Furthermore, addressing reputational concerns stemming from high levels of fraud, tax evasion and money-laundering will remain a CBCS priority.