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 main refinancing operations, the marginal lending facility and the overnight deposit facility, remain unchanged at 3,25%, 4,25% and 2,25%, respectively.
Following an extensive discussion, the MPC noted with concern the acceleration in inflation in March, which reached 3,23%, compared with 2,64% in February and 2,25% in January 2006. For the first quarter of 2006, inflation stood at 2,72%, down from 2,88% the corresponding period in 2005. The MPC took into serious consideration the fact that inflationary pressures are being amplified also by the notable expansion of both the money supply and credit to the private sector. The MPC also noted that the rate of economic growth remains satisfactory and that following a short period of foreign exchange outflows, foreign exchange inflows have recently resumed. At the same time, the MPC reiterated, once again, that public finance consolidation should continue, all the more supported by structural measures.
In view of the above, as well as the fact that both, the European Central Bank (ECB) and the Bank of England left their official interest rates unchanged at their yesterday’s meetings, the MPC unanimously decided to adopt a wait-and-see stance, at this juncture, leaving official interest rates of the Central Bank of Cyprus unchanged.
It is noted that the interest rate on the main refinancing operations is quoted in this press release. This corresponds to the ECB interest rate on the main refinancing operations, which drives money market interest rates in the euro area. It is emphasised in this respect that, the Central Bank of Cyprus, in the context of the harmonisation with the euro area practices, will gradually proceed with the transition from the interest rate on the marginal lending facility, as the basic rate, to the aforementioned rate.