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CBC governor wants to address interest rate disparity

The newly appointed governor of the Central Bank of Cyprus (CBC) Christodoulos Patsalides has deemed today’s interest rate disparity between lending and deposit rates in Cyprus unsatisfactory, suggesting various considerations for closing the gap in favour of the economy.

Patsalides’ remarks were made following a meeting with Finance Minister Makis Keravnos, during which broader economic issues were discussed.

According to Keravnos, the meeting involved a comprehensive discussion on the economy and financial stability, exploring further collaboration avenues within the context of crucial geopolitical developments.

“Certainly, with Mr Patsalides, we will have continuous and close collaboration for the common good, which is the benefit of our economy,” stated the Minister of Finance.

In his statements, Patsalides mentioned a preliminary contact with Keravnos, with whom he had previously collaborated as an advisor to the president, indicating his familiarity with the ways in which constructive cooperation will continue.

Regarding the economy, the new governor highlighted Cyprus’ resilience and capacity to withstand any crises it has to face but cautioned against complacency due to various ongoing challenges.

“The primary concern for us as the Central Bank is the financial stability of the country, and we will contribute as best as we can to achieve this goal,” the governor said.

“I consider that the official interest rates set by the ECB are at the right level to achieve the 2 per cent inflation target in the medium term, and we await more data to see the trajectory of interest rates,” he said.

He added that there are uncertainties related to developments in the Middle East, the outcomes of which are unknown.

Referring specifically to Cyprus, Patsalides said there is a significant gap between deposit and lending rates, which he attributed to the small size of the Cypriot economy and the surplus liquidity of the banking system.

“However, this does not satisfy us; we must find ways, and there are considerations, for this gap to narrow for the good of the economy,” he stressed.

Asked about the progress of the bill concerning the Central Bank, Patsalides said he has not yet seen it due to lack of time. In this context, he expressed his desire for the transparency and accountability of the CBC to be further enhanced.

This entails ensuring adequate access to information, the effective operation of the administrative and executive boards, strengthening internal control mechanisms, and establishing committees and departments.

These measures aim to ensure that the governance standards of the Central Bank are on par with those of other European banks.

Addressing these questions, the Finance Minister said his views align perfectly with those of the CBC governor.

Asked if he considers a reduction in interest rates likely in June, Patsalides reiterated that, in his opinion, the current interest rate level is appropriate.

He added that in June, the ECB will have more data at its disposal, and based on that, its position on the trajectory of interest rates will be shaped.

“The ECB has not committed to further reducing or raising interest rates; it has not determined its course. It maintains its flexibility, which will depend on the economic data at that time,” the CBC governor said.

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