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 minimum bid rate on the main refinancing operations, the interest rate on the marginal lending facility and the interest rate on the overnight deposit facility remain unchanged at 3,25%, 4,25% and 2,25%, respectively.
Following an extensive discussion, the MPC noted that the rate of growth in domestic economic activity remains satisfactory, while inflation receded to 2,96% in April from 3,23% in March. Despite this favourable development in inflation, underlying inflationary pressures persist, fuelled by high oil prices and the notable expansion registered by money supply and credit to the private sector. The MPC also took note of the extent of the foreign exchange inflows and the resulting commensurate appreciation of the exchange rate of the Cyprus pound vis-ΰ-vis the euro. The considerable foreign exchange inflows are mainly attributed to increased residents’ borrowing in foreign currency. In connection to this, the MPC wishes to emphasise to borrowers the exchange rate risk inherent in foreign currency borrowing, especially in currencies other than the euro. In this economic environment, the MPC considers that public finance consolidation is now even more imperative, especially by means of structural measures.
In view of the above, as well as the fact that at their recent meetings both the European Central Bank and the Bank of England left their official interest rates unchanged, the MPC unanimously decided to adopt at this juncture a wait-and-see stance, leaving official interest rates unchanged.