At today’s meeting of the Monetary Policy Committee (MPC), the following monetary policy decisions were taken:
The official interest rates of the Central Bank of Cyprus, that is the interest rates on the marginal lending facility and the deposit facility, remain unchanged at 5,50% and 3,50%, respectively.
During its meeting, the MPC noted with concern the rise in domestic inflation to 4,20% in December, compared with 2,98% in the previous month, and 2,49 % during the same period in 2003. Despite relatively low inflation of 2,28% for the whole year, the MPC expressed once more its concern about the upward trend in prices during the second half of 2004. Inflationary pressures are fuelled by the existence of the Cost of Living Allowance, the acceleration in bank credit and the money supply, as well as the growth of the Cyprus economy, estimated to be around 3,5% and 4,0%, in 2004 and 2005, respectively. The MPC also noted that the encouraging developments regarding public finances are being overshadowed by the pending collective labour agreements in the semi-government organisations, as well as the continuous high fiscal deficit.
In view of the above and the wait-and-see stance adopted by the European Central Bank, the MPC decided to leave official interest rates unchanged.