At today’s meeting of the Monetary Policy Committee (MPC), the following monetary policy decisions were taken:
The key official interest rates of the Central Bank, that is the interest rates on the marginal lending facility and the deposit facility remain unchanged at 4,50% and 2,50%, respectively.
During its meeting, the MPC noted that recent developments in US domestic consumption confirm a continuation of the economic recovery with its growth rate expected to reach 4,5% in 2004. Economic recovery in the euro area, however, is continuing at a slower pace than in the US. In view of this economic environment, the US Federal Reserve and the European Central Bank (ECB) decided to keep their official interest rates unchanged, whereas the Bank of England increased its repo rate by 25 basis points. The decision of the ECB was based on the fact that inflationary pressures in the euro area continue to be contained by the strong euro.
Regarding domestic economic developments, the inflation rate in January decreased substantially to 1,81%, compared with 4,10% in the same month of the previous year, mainly due to the significant reduction in new car prices and the diminished impact of the rise in VAT. At the same time, subdued domestic economic activity is confirmed by several indicators, such as the fall in tourist arrivals in January 2004 and the low growth in money supply and bank credit. In view of the above, and taking into account the strengthening of the euro and the Cyprus pound, as well as the broadening of the fiscal deficit, the MPC decided to adopt a wait-and-see stance leaving its official interest rates unchanged.