Finance minister pleads with banks not to raise interest rates again

Finance Minister Makis Keravnos said on Monday he will have a new round of meetings with bank executives to see how lenders might refrain from raising interest rates again, as the higher rates alone do not appear to be having a discernible impact on inflation.

Speaking to the Omega channel, Keravnos called the rise in bank rates unjustified.

“The increase in interest rates across the board for all European countries creates problems, as there are countries where the rate of inflation continues to rise rapidly, whereas in Cyprus at the end of June inflation had registered at just 2.4 per cent.”

At the moment, he added, there is no good reason to continue raising interest rates in Cyprus as this creates a daisy-chain of problems for individuals and businesses alike.

The economy czar said that last week he sent a third letter to the banks where he called on them to “assume their responsibilities toward the Cypriot economy and society, given that large organisations such as the banks ought to have particular sensibilities regarding their corporate social responsibility”.

Taking a question about the idea to levy a windfall gains tax on banks, Keravnos said the finance ministry still does not have “a crystallised view” on the matter.

Later in the day, he told another media outlet that the ministry is “studying carefully” the issue of a windfall tax. He was non-committal about a timeframe for rolling out such a tax, if ever.

Last week, Stockwatch had reported that finance ministry technocrats were assessing the financial results of banks, and that a one-time tax on windfall gains was being mulled.

Coming back to the issue of rising prices in consumer goods, Keravnos noted that “back-to-back increases in interest rates have not brought about any dramatic results in terms of dealing with inflation.”

He said he had raised this matter during the last Ecofin (Economic and Financial Affairs Council) which he attended.

“Inflation cannot be tackled with a dry monetary policy alone, you need a combination with fiscal policy.”

Meantime just-released data show that in July net deposits in the banking system declined by €301 million – compared to a net increase of €399 million in June. In July, total deposits came to €51.9 billion.

Stockwatch said this was likely indicative of people tapping into savings to make ends meet as the cost of living continues to rise.

During July, deposits of Cypriot nationals fell by €227 million, compared to an increase of €387 million in June. Deposits of EU nationals (other than Cypriots) declined by €62 million, compared to an increase of €40 million in June. Lastly, deposits of non-EU nationals registered a drop of €11 million, compared to a decrease of €28 million in June.

Total bank loans also dropped by a net €100 million in July compared to a net increase of €123 million in June.