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, are decreased by 0,50 percentage points to 4,75% and 2,75%, respectively.
During its meeting, the MPC undertook an in-depth assessment of the entry of the Cyprus pound in the Exchange Rate Mechanism II (ERM II). Cyprus’s participation in ERM II represents a milestone in the island’s European economic and monetary integration. The fact that the Cyprus pound entered the ERM II at its pre-existing unilateral central parity against the euro, confirms the successful and stable course of our currency. The parity was agreed by the European Central Bank, the European Commission and our European partners. As a result, our currency enjoys further support and confidence, which is reflected in the reported increase in foreign exchange inflows and the pound’s appreciation against the euro.
The MPC noted, among other things, that the increased differential between Cyprus and European official interest rates, which was created during the extraordinary circumstances in April 2004, is not in line with the enhanced confidence in the Cyprus pound post-ERM II entry. The MPC also took into account the substantial reduction in the fiscal deficit in 2004 and its expected further reduction in 2005.
In view of the above, the MPC decided to decrease the official interest rates by 0,50 percentage points.