NICOSIA (Xinhua) – The Central Bank of Cyprus (CBC) ordered banks on Monday to lower their rates by one percentage point in a bid to help revive the recession-hit economy of the bailed-out eastern Mediterranean island.
A CBC statement said its governing board decided to change downwards the maximum deposits rate by one percentage point and urged banking institutions to reduce their lending rates by as much.
“The Central Bank will be closely following the trends in lending rates and it will decide on additional measures if needed,” the CBC statement added.
The Cypriot economy has been in recession for 14 quarters in a row but is expected to return to a modest positive growth this year.
The Central Bank statement did not specify what additional measures it would take, but informed sources said that the Central Bank had warned banks in meetings last week that it would impose penalties on banks which will not offer proportionally lower lending rates.
The deposits interest rate was up to now estimated on the basis of three percentage points plus the Euribor, that is the average fluctuating interest rates at which European banks borrow funds from one another. The Euribor currently stands at 0.259 per cent for interbank loans maturing in a year.
That means that banks must from now on offer a maximum deposits rate of about 2.26 per cent and lower all their lending rates by one percentage point.
Shortly after the Central Bank’s statement, Bank of Cyprus, the island’s largest bank, said it has decided to lower all its basic interests rates by one percentage point without any exception.
Bank of Cyprus said that the decision comes into immediate effect, and will be applied fully on March 1, 2015, covering 180, 000 accounts belonging to 94,000 customers.