Cyprus banks slow to pass ECB rate changes, CBC says

The Central Bank of Cyprus (CBC) has reported that the transmission of European Central Bank (ECB) interest rate changes remains weaker in the Cypriot banking sector compared with most euro area countries, according to a new analysis accompanying April 2026 interest rate data.

The analysis shows that Cypriot banks pass on ECB rate changes to depositors to a more limited extent, and in some cases also to borrowers, with the most significant divergence observed in deposit interest rates, which remain the lowest in the Eurozone.

The CBC said that Cyprus deposit rates represent the largest deviation from the Eurozone average, particularly during the period of ECB rate increases, when banks transferred only a portion of the hikes to savers compared with other member states.

The same limited adjustment was also observed during the recent period of falling ECB rates, indicating a broadly subdued transmission mechanism in both directions of the interest rate cycle.

This pattern is especially evident in new fixed-term deposits by households and businesses, where Cyprus continues to record one of the weakest performances in the transmission of ECB monetary policy.

In particular, the average rate on new household fixed-term deposits of up to one year stood at 1.20 per cent in April 2026, significantly below the Eurozone median of around 1.8 per cent.

The figures confirm that Cypriot savers continue to receive lower returns on deposits compared with most of their euro area counterparts, despite broader monetary policy developments.

In contrast, the CBC found that the transmission of ECB rate changes to mortgage lending in Cyprus is broadly in line with Eurozone levels.

This suggests that households seeking housing credit are experiencing a more typical pass-through of monetary policy compared with the deposit side of the banking system.

However, the situation differs in the corporate lending segment, where business loan rate transmission remains weaker than in other euro area countries, both during periods of rising and falling ECB interest rates.

The CBC said this highlights persistent structural characteristics in the Cypriot banking market, which continue to affect the efficiency of monetary policy transmission.

The analysis accompanies April’s interest rate data, which also showed a further easing in borrowing costs in Cyprus.

The average rate on new housing loans fell to 3.92 per cent in April, down from 4.14 per cent in March, reflecting a continued downward adjustment in mortgage pricing.

At the same time, the average rate on new business loans of up to €1 million declined to 4.63 per cent, indicating a similar easing trend in corporate borrowing costs.

Despite the decline in lending rates, the CBC stressed that the Cypriot banking market continues to diverge from the wider Eurozone, particularly on the deposit side, where the gap remains pronounced.

The report also noted that April saw a decline in total private sector deposits and a slowdown in the growth of bank lending, figures that had already been published earlier in the month by the central bank.