Cyprus Mail

Confusion over interest rate reduction statement

Central bank chief Chrystalla Georghadji

By Angelos Anastasiou

Central Bank Governor Chrystalla Georghadji’s remarks in parliament on Tuesday were mistakenly interpreted as an imminent announcement of reductions in interest rates in two weeks’ time, the CBC’s Supervision Director Yiangos Demetriou said on Wednesday.

Georghadji had told the House Ethics committee that “the CBC’s board has decided to lower interest rates” and added that “the relevant announcement will be made within a fortnight”.

According to Demetriou, who was speaking on state radio on Wednesday morning, this was erroneously taken to mean that the CBC will announce interest rate decreases, which is simply not an option.

“Mrs Georghadji never said that”, Demetriou said. “What she told deputies is this: ‘in the CBC’s effort to come up with solutions in lowering interest rates and improving the rate of loan restructurings, the board has instructed a team of technocrats to study various options and present proposals to the board within 15 days’”.

Demetriou argued that not only does the CBC not have a “magic wand” to fix problems relating to interest rates and restructurings, it is not even the competent authority any more.

“There is no easy way to do it”, he said. “The CBC does not have the power to lower interest rates by decree. And let us not forget that since November 4, we are under the jurisdiction of the Single Supervisory Mechanism – essentially, of the European Central Bank. So any suggestions we make need to be approved by the ECB”.

Demetriou said the latest data aggregated by the CBC indicates that €3.4 billion of non-performing loans were restructured by September 2014, or almost 13 per cent.

“While this figure is in no way satisfactory, it is positive that the June 2014 figure was €2.2 billion, meaning a 50 per cent increase,” he added.

Demetriou’s clarification was widely seen by political parties as a clumsy attempt at stonewalling.

“AKEL considers the image of chaos and confusion on this matter unacceptable”, the communist party said in a statement. “We reiterate the need for a significant reduction in lending interest rates, as well as the margin between interest rates for loans and deposits, which are the highest in Europe”.

Socialist party EDEK said the contradictory statements made by the Central Bank can only hurt the economy through the uncertainty they create.

“EDEK calls on the Central Bank and the government to press ahead with all the necessary steps for the significant and immediate decrease in interest rates”, the party’s deputy Nicos Nicolaides said in a statement. “They should, at last, show some

respect to the citizens, whose bloody sacrifices kept the banking sector alive”.

Green party deputy Yiorgos Perdikis said Georghadji needs to state the CBC’s intentions publicly in order to clear up any misunderstanding.

“An announcement for the lowering of interest rates should be accompanied with evidence, a timeline and an impact assessment”, charged Perdikis. “The economy will benefit from a significant reduction, and not by the CBC throwing breadcrumbs to sway public opinion. We demand actions, not just indefinite announcements for public consumption”.

Even junior government coalition partners EVROKO were critical.

“I do not consider the CBC governor’s remarks as the start of a serious effort to lower interest rates, either for new or existing restructured loans”, said party leader Demetris Syllouris.

But perhaps most significantly was a tweet posted on Tuesday night by DISY leader Averof Neophytou, who had led the way in calling for Georghadji’s resignation after it was revealed that she had made alterations to her employment contract before signing it a few months ago.

“Interest rate reductions are implemented, not announced”, Neophytou tweeted.

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