Cyprus rates remain on hold

The Monetary Policy Committee (MPC) voted 5-1 on Friday to maintain unchanged the official interest rates of the Central Bank of Cyprus, that is the interest rates on the marginal lending facility and the deposit facility, at 4.25% and 2.25%, respectively.

Talking to journalists after the meeting of the MPC, Central Bank Governor Christodoulos Christodoulou said that the Committee noted the continuing satisfactory domestic growth in economic activity and bank credit, adding that domestic inflation dropped to 2.87% in November compared with 3.07% in the previous month.

‘For the first eleven months of 2005, inflation reached 2.61% compared with 2.11% over the same period of 2004,’ Christodoulou said.

The Central Bank Governor said the MPC noted the publicised wage and other expenditure demands and pointed out again that these should not exceed the capacity of the economy.

Furthermore, the MPC stressed that fiscal discipline and consolidation should continue, supported by structural reform measures, in order to achieve the goal of adopting the euro on 1 January 2008.

‘With regard to monetary developments,’ Christodoulou said, ‘the MPC expressed its concern about the large foreign currency inflows, partly due to higher borrowing in foreign currency, with the consequent rise in the value of the Cyprus pound against the euro.’

‘In view of the above, as well as the fact that during its meeting yesterday the European Central Bank decided to increase its official interest rates by 0.25 percentage points, thus narrowing the differential between Cyprus and European official interest rates,’ Governor Christodoulou added,’ the MPC decided, by a majority vote, to maintain at this stage a wait-and-see stance, leaving official interest rates unchanged’.