Cypriot Central Bank has interest rates unchanged

NICOSIA (Reuters) – Cyprus’s Central Bank kept its interest rates unchanged at a review yesterday, saying present economic conditions did not warrant an adjustment. The bank had increased its refinancing rate to 4.50 percent from 3.25 percent during a review on September 1, and its Lombard and overnight deposit facility rate by 25 basis points to 4.50 and 2.50 percent respectively. The Monetary Policy Committee (MPC) noted that international and domestic developments had not changed so significantly since its last meeting as to warrant a change in domestic interest rates at this juncture, Central Bank Governor Christodoulos Christodoulou told reporters. The surprise September 1 hike was the first rate move in more than a year and was prompted by concerns over inflation due to high fuel prices and an acceleration in the supply of money, and credit to the private sector. Inflation lower Inflation was running at 3.1 percent at the end of August on the back of rising fuel prices, but dropped to 2.38 percent for September, Christodoulou said. He said inflation in the first nine months reached 2.87 percent compared with 2.53 percent in the first nine months of 2005. «Notwithstanding the relatively favorable development on the inflation front in September, inflationary pressures lurk, fueled by high oil prices and the notable expansion registered by money supply and credit to the private sector,» said Christodoulou. He also urged caution on the extension of credit in the private sector. «The MPC, once again, draws the attention of borrowers to the interest rate and exchange rate risk inherent in foreign currency borrowing,» Christodoulou said. Before the September 1 hike, the Central Bank had not altered its interest rates since a 50 basis point cut in June, 2005. That move was taken to arrest a rising Cyprus pound breaking the upper limit of its 2.25 percent fluctuation band around the euro. The Cypriot currency is in ERM 2, a stabilization grid anchoring it against the euro as a precursor to adoption of the single currency, which Nicosia hopes to do in January 2008.