Cyprus central bank cuts key lending rate

NICOSIA (Reuters) – The Cyprus central bank announced a 50-basis-point cut in its key lending rate to 5.5 percent yesterday in a move to cushion the tourism-reliant economy from a global slowdown. The bank’s third rate cut this year takes effect on Monday. The rate for deposits will fall to 2.5 percent. Central Bank governor Afxentis Afxentiou said the move, which follows 50-basis-point cuts in August and in September after the attacks on the United States, was justified in the current world economic slowdown. He said the global fallout has prompted economists to review the island’s forecasts of a 4 to 4.5 percent economic growth in real terms this year. We do expect a favorable impact on the economy (from the cut) but interest rates are just one of many tools. For instance, we would now expect the government to speed up its own development projects, he added. Holiday arrivals have stalled in the wake of the September 11 attacks on the United States, casting a long shadow on the outlook for the winter and summer seasons in a sector which accounts for about a fifth of Cyprus’s gross domestic product. But Afxentiou said that consumer spending has also been hit. The government does not provide monthly figures, but independent analysts told Reuters on Thursday that from 6.7 percent in 2000, the growth in spending has fallen to below 3 percent this year. Afxentiou said he would be surprised if the island’s bourse did not welcome the news on Monday. Brokers and the government have for some time been calling on the central bank to ease rates in a bid to coax reluctant investors back to the bourse. Greece has already seen some consolidation, with tiny banks being gobbled up and some foreign players coming in to take strategic shares.

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