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 overnight deposit facility, increased by 0,25 percentage points to 4,50% and 2,50%, respectively.
Following an extensive discussion, the MPC noted with concern the acceleration in inflation in July, which climbed to 3,22% from 3,02% in the previous month. In the first seven months of 2006, inflation accelerated to 2,92% compared with 2,54% in the corresponding period in 2005. Inflationary pressures continue to be amplified by high oil prices and by acceleration of the money supply and credit to the private sector, with the latter accounted for, to a large extent, by consumption related expenditures.
The MPC, after taking into account all the above, as well as the fact that it maintained interest rates unchanged for more than one year, while at the same time the European Central Bank and most of the major central banks increased their rates, decided by a majority to increase the two aforementioned rates by 0,25 percentage points. At the same time, with the aim of achieving gradual harmonisation with euro area practices, the MPC decided to increase the bid rate on the main refinancing operations to 4,50%. This rate will hereafter form the basis for the pricing of credit institution loans in Cyprus pounds, instead of the interest rate on the marginal lending facility (Lombard), used until now. The MPC wishes to clarify that, as a result of today’s decisions, borrowers will bear a rise in their cost of 0,25 percentage points.