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 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 the signals from the international economy continue to be positive and economic growth remains on an upward trend. The MPC also took into account the fact that the major non Asian economies, except the Euro area, have entered into a phase of contractionary monetary policy, whereas an increase in interest rates is expected to take place in the Euro area by the end of the year.
Regarding domestic developments, economic recovery has been recorded with GDP growth for the first quarter of 2004 rising to 3,4% compared with 2,1% during the same period in 2003. In addition, significant foreign exchange inflows were reported in May and June, while for the first half of 2004, inflation rose to 1,47% from 1,20% recorded during the first five months of 2004, and compared with 4,87% during the same period in 2003. Regarding public finances, the MPC stresses once more that the magnitude of the fiscal deficit is the most important problem for the Cyprus economy, which resulted in the launching of the excessive deficit procedure for Cyprus. The MPC made it clear that the measures included in the Convergence Programme submitted to the EU, must be implemented in order for public finances to be improved, and to avoid unfavourable consequences for public debt, inflation and the current account balance. At the same time, the implementation of the Convergence Programme will aid Cyprus in regaining its credibility and maintain its strategic goal of adopting the euro as soon as possible.
In view of the above, the MPC decided to adopt a wait-and-see stance leaving its official interest rates unchanged.