Cyprus EUR 3 bln bond to knock 1% off domestic lending costs

Cyprus plans to issue EUR 3 bln in three year bonds to domestic banks to assist them in getting cheaper funding from the European Central Bank, the finance ministry said on Wednesday.
Commercial lenders which will be allocated the bonds will be legally obliged to pass cheaper interest rates on to consumers, authorities said.
'The government will issue these bonds which banks and co-ops can use as a source of drawing cheap liquidity from the eurosystem,' Finance Minister Charilaos Stavrakis told journalists.
'It is anticipated this measure will reduce domestic bank lending rates by at least 1%,' he said.
The move requires parliamentary approval. Stavrakis said the bonds would be allocated to banks based, in part, on their market share. The issue is scheduled before the end of 2010.
Banks would be legally obliged to pass on the cheaper lending in their pricing structure, Stavrakis said.