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 that growth in the world economy for 2004 and 2005 is likely to remain strong and is estimated that it will be between 4% and 5%. There are also signs of recovery in the Cyprus economy with an expected growth rate in 2004 of around 3,5%. This recovery is evidenced by, among other things, an increase in tourist arrivals recorded in October and a concomitant rise in revenue, as well as a rise in private consumption and bank credit.
Inflation in the domestic economy accelerated in November reaching 2,98% from 2,54 and 2,37% in October and September, respectively. Inflation in the first eleven months of 2004 was 2,11% compared with 4,29% during the same period in 2003. Despite the low level in inflation in the first eleven months of 2004, the MPC expressed concern about the rise in inflation in the second half of 2004 as well as its expected future course, especially within the context of the reduction in the impact of certain factors which act as a restraining influence on its rise. The MPC also noted that the fiscal deficit continues to be at a high level, despite its reported improvement.
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.