MPC votes 3-2 to keep rates

The Monetary Policy Committee of the Central Bank voted 3-2 to keep interest rates stable during its routine meeting on Friday. According to Central Bank Governor Christodoulos Christodoulou, 3 members voted to maintain rates at the same level, while two members voted for another cut in interest rates. The results were the same as the previous MPC meeting in September.

The key borrowing Lombard rate was thus left at 4.25%, or unchanged since June 2005 when rates were last slashed. The refinancing rate was also left unchanged at 3.25% while the deposit facility rate was left the same at 2.25%.

The Cyprus rates compare to 2% on the ECB refinancing rates for euro loans, the Fed funds rate of 3.75% for borrowing in dollars and 4.5% for borrowing in sterling pounds based on the BoE borrowing rate.

The Cyprus MPC cited the rapid increase in the inflation rate, up at 2.93% year-on-year during August as one of the reasons why it felt obliged to maintain rates at prevailing levels, while it also notes the high level of the Cyprus pound against the euro, which it says is due to the influx of foreign funds being switched into the local currency.