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 5,50% and 3,50%, respectively.
During its meeting, the MPC noted that following its recent decision on 30 April 2004 to increase its official interest rates by one percentage point, confidence in the Cyprus pound has been reinforced. This assessment is justified by the reversal of the foreign exchange outflows which were reported in the second half of April, resulting in significant foreign exchange inflows in May and during the beginning of June.
As regards international developments, economic growth remained on an upward trend, though under the shadow of the significant increase in the price of crude oil. At the same time, most of the major central banks, apart from the Bank of England, kept their interest rates unchanged during their recent meetings.
Regarding domestic developments, inflation in May rose to 1,49%, from 0,48% in April, whereas for the first five months of the year the rise was 1,20%, compared with 5,04% reported during the same period in 2003. For the remainder of 2004 inflation is expected to rise further and be around 2,0% for the whole year. Regarding public finances, the MPC reiterated its deep concerns about the level of the fiscal deficit. This deficit, in addition to its negative impact on public debt and its potential effects on inflation and the current account balance, has resulted in the launching of the Excessive Deficit Procedure for Cyprus. The MPC stresses once more the urgent need for increased fiscal discipline and consolidation, as well as the implementation of the measures included in the Convergence Programme, which the government submitted to the European Union.
In view of the above, the MPC decided to adopt a wait-and-see stance leaving its official interest rates unchanged.