LATEST NEWS: Almunia dashes interest rate hopes

Commissioner for Economic and Monetary Affairs Joaquin Almunia dashed hopes on Thursday of an interest rate cut when the Monetary Policy Committee meets on Friday.

Speaking at a press conference in Nicosia during his day-long official visit, Almunia told journalists that he has asked the authorities to “pay more attention to inflation.”

His comments, backed by Central Bank Governor Christodoulos Christodoulou speaking at the same conference, are seen as an indication that interest rates will not fall on Friday – the first MPC meeting after Cyprus joined the European Exchange Rate Mechanism (ERM2) on May 2.

Hopes had been raised that interest rate would fall following the strengthening of the Cyprus pound after its entry in to ERM2.

Almunia pointed out that the maximum inflation rate permitted to fulfill the Maastricht inflation criterion at the end of 2004 was 2.4%. Since the authorities are expecting year-end inflation of around 2.5% this year, they are “estimating a limit just within or above” the Maastricht ceiling in 2004.

Almunia also pointed out that, although the Commission has no jurisdiction in this area, he was concerned about the wage indexation mechanism known as COLA.

“The mechanism for wages can have an inflationary effect,” he said.

The Commissioner for Economic and Monetary Affairs started the day with a meeting with President Tassos Papadopoulos, after which he met Finance Minister Makis Keravnos.

He later had a meeting with House President Demetris Christofias and members of the parliamentary Finance Committee.

Central Bank Governor Christodoulos Christodoulou hosted a lunch for the Commissioner, after which the European official, Christodoulou and Keravnos gave a joint press conference.

In the evening, Commissioner Joaquin Almunia will expected to give a speech on “Cyprus: Preparations for the introduction of the Euro” at the Cyprus Hilton, followed by dinner hosted by Finance Minister Makis Keravnos.