Cyprus to inject new liquidity into banking system

Cyprus will inject an additional liquidity of 1 billion euro in the banking system in a bid to stimulate the decline of interest rates and to refinance expiring public dept, Finance Minister Charilaos Stavrakis announced on Monday.

Speaking after a meeting with Minister of Commerce, Industry and Tourism Antonis Paschalides and representatives of the island's commercial banks and cooperative societies, Stavrakis said the government will issue a short-term bond to Cypriot banks worth 1 billion euro, which expires in late December, at a rate of 1.5%.

According to Stavrakis, this bond can be used by the Cypriot banks as collateral to pump liquidity from the European Central Bank at a rate of 1.25%, while the government will deposit these funds in the Cypriot banks.

''In a few words, an additional liquidity of 1 billion euro is injected into the market, commercial banks and cooperative societies, exploiting the window of opportunity given by the European Central Bank. This is a practical and an extremely important decision which will be immediately implemented,'' he said.

Stavrakis noted that banks and cooperatives have pledged to help reduce interest rates in Cyprus, adding that it has been agreed to publish the average deposit and lending rates on a monthly basis.

This is the second time Cyprus issues bonds to domestic banks, after a 1.4-billion-euro bond it issued last December. Furthermore Stavrakis said that the government will proceed as planned with the issue of a 1 billion euro bond to international markets, in a bid to cover financing needs, which will reach 2.5 billion euro in the next ten months.

Cyprus’ financing needs, include approximately two billion euro of expiring public debt, 400 million euro due to government pledges to the Social Insurance Fund and a housing scheme for young couples, as well as from the decline of public finances due to the global financial crisis.