The Monetary Policy Committee (MPC) of the Central Bank of Cyprus (CBC) decided to leave unchanged the minimum bid rate on the main refinancing operations, the interest rate on the marginal lending facility and the interest rate on the overnight deposit facility remain unchanged at 4,50%, 5,00% and 3,00%, respectively.
The MPC noted that recent developments did not warrant a change in domestic interest rates. Inflation climbed to 3,53% in November, from 2,99% in October, partly as a result of the historically high oil prices, while inflationary pressures continue to be fuelled by the fast growth of the money supply and credit to the private sector. The increase in the Consumer Price Index due to the elimination of the impact of the decline in excise taxes on vehicles in November 2006 should also be noted. A major cause of concern is the distribution of loans which are primarily channelled to the construction sector and to consumption, thereby contributing to the increase in real estate prices and the noticeable widening of the trade deficit.
The MPC, taking into account all the above, as well as the fact that the European Central Bank (ECB) maintained interest rates unchanged at its recent meeting, decided, unanimously, to maintain its waiting mode and keep the official interest rates of the Central Bank of Cyprus unchanged.
It is noted that in accordance with the Euro Adoption Laws of 2007, as of 1 January 2008, the official interest rates of the CBC will be replaced by the respective interest rates of the ECB. As a result, as of 1 January 2008 the minimum bid rate on the main refinancing operations, the interest rate on the marginal lending facility and the interest rate on the overnight deposit facility of the CBC will automatically be replaced by the respective interest rates of the ECB. The MPC still has the authority to change the CBC’s interest rates up until 31 December 2007, the last day before its dissolution.
The aforementioned interest rates of the ECB, which will become applicable in Cyprus as of 1 January 2008, will be determined by the Governing Council of the ECB in which the Governor of the CBC will participate as a full member.
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