Cyprus interest rates on hold

The Monetary Policy Committee (MPC) of the Central Bank of Cyprus decided to keep interest base rates at 4.5%. The official interest rates are set at the following levels:

• Minimum bid rate on the main refinancing operations (repo): 4.50%

• Interest rate on the marginal lending facility (Lombard): 4.50%

• Interest rate on the deposit facility: 2.50%

Following an extensive discussion, the MPC noted that international and domestic

developments have not substantially changed since its last meeting in October 2006, so as to warrant at this stage a change in domestic interest rates.

More specifically, on the domestic front, the MPC noted with satisfaction the ongoing

deceleration of inflation, as a result of which inflation receded to 1.43% in October 2006, from 2.38% in September and 3.10% in August 2006. For the ten-month period covering January – October 2006, inflation reached 2.73% compared with 2.9% in the corresponding period of 2005. Despite the considerable decrease in inflation, the MPC expressed its concern about the continuing sizeable expansion in the money supply and credit to the private sector, which contribute to the widening of the trade deficit.

The MPC, taking into account all the above, unanimously decided to adopt a wait-and-see stance, leaving the official interest rates of the Central Bank of Cyprus unchanged.