As rates rise, Cyprus central bank cautions over foreign currency loans

NICOSIA (Reuters) – Cyprus’s central bank cautioned borrowers over loans taken out in foreign currencies yesterday, saying they needed to monitor interest rates because of an upsurge internationally. There has been an increase in forex borrowing since Cyprus joined the European Union in May 2004, with islanders drawn by perceptibly cheaper loan costs compared to the Cyprus pound. «Borrowers should be aware that the period of loose monetary policy and of historically low interest rates internationally is over,» the central bank said in a statement. Cypriot commercial banks advertise loans in foreign currencies, notably in the euro, widely. The European Central Bank raised its rates to a three-year high of 2.75 percent last week in response to inflationary concerns in the eurozone. The benchmark rate is 3.25 percent domestically, a 50-basis point margin over the key ECB rate. The most recent central bank credit data for April 2006 showed foreign lending by residents was climbing steadily. Foreign loans by them reached 1.37 billion pounds ($3.04 billion) at the end of the first quarter, some 35.1 million pounds higher than the corresponding period of 2005. Cyprus’s currency, the pound, fluctuates against the euro in a narrow 2.25 percent band around a central reference rate of one euro worth 0.58 Cyprus pounds. It was trading about 1.8 percent above the key reference rate against the euro by midafternoon trading yesterday.

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