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CB contemplates move on interest rates

28/01/2015 07:15
The study of the technocratic group of Central Bank on interest rates is expected to be completed within the next few days.

The study is expected to be brought before the CB board which convenes on Monday, February 9 in order to take final decisions.

As Christalla Georghadji has stated in parliament, the key setting under investigation is the reduction of deposit rates, which was also applied by the CB in April 2013.

If it is decided to reduce deposit rates, the CB Board will attempt to put safeguards so that the entire benefit is passed on to borrowers by lowering lending rates.

The previous intervention of CB in interest rates led to a sharp and sudden decline in deposit interest rates and a gradual and smaller reduction in lending rates.

The deposit and lending rates of the Cypriot banks are the highest in the euro system, hindering the sustainability of loans given and making it more difficult for households and businesses to get new loans.

One aspect of the scenarios considered is linking the capital penalty to be imposed on banks for offering high interest rates on deposits, with the loan restructuring rate.

Connecting rates and restructurings is expected to expedite the examination of applications for modification of borrowing terms.

So far, banks have restructured only 12% of non-performing loans in their books worth € 28 billion. In many cases the loan restructuring is impossible because the loans granted to companies and households are not sustainable.

The parameters that CB will assess include the impact of ECB’s quantitative easing on the cost of state borrowing and on lending rates.

Although it is still early for the effects of the new policy of ECB to be shown, conditions of decreasing yields of Cypriot bonds are already being witnessed in the secondary market.