Mortgage Interest Rates in Cyprus

Cyprus entered the Euro in January 2008 and Cyprus banks now offer loans and mortgages in euros at interest rates set by the European Central Bank.

On 26 March, The President of the European Central Bank, Jean-Claude Trichet, dashed hopes of a cut in European interest rates any time soon.

He was speaking after a meeting of the Bank’s Governing Council which left the ECB’s key rate unchanged at 4%, as expected. Mr Trichet gave a firm indication that the bank is likely to keep interest rates unchanged for some to time to come.

He said that the bank’s Governing Council was unanimous that the current level of interest rates was appropriate and would help to combat inflation. He also said the Bank now expected that the Euro Zone inflation rate would be higher than previously estimated.

The Euro Zone, like the UK, is also suffering increased inflation from the rising costs of energy and other commodities.  Because the increase is not being generated by consumer purchasing and low interest rates then the ECB, like the UK, will not raise interest rates either. But they will not reduce them either. Which is what Trichet is doing.

The ECB’s rates decision came as the euro rose to a fresh all-time high of $1.57, buoyed in part by the prospect that euro zone interest rates will remain higher for some time while US Monetary Policy is set to ease further.

The Euro is at an all time high at 1.26 versus GBP and this is keeping the Brits out of property purchase in Cyprus but if you are a Euro Zone purchaser then the position is obviously unaffected.  

There has been a big tumble on the Cyprus Stock Exchange (CSE). This affects economic confidence in “Cyprus Limited” both internally and externally. It is a bad time to lose confidence. When the last crash occurred on the CSE investment fled to the Cyprus property sector. The Cyprus property market, with demand falling, does not seem to be a safe haven, yet alone a place for growth. The worst of this latest CSE tumble is that foreign investors are selling Cyprus bank shares. Cyprus banks have grown too quickly on consumer lending for property,furniture,foreign holidays etc.,

French President Nicolas Sarkozy said in a speech on 27 March that the euro is “too strong” in light of the Euro Zone’s lacklustre rate of economic growth.

Addressing business and finance leaders in London on the second and final day of a state visit, Sarkozy said: “The dollar has never been weaker … and the euro, which is based on too-low growth rates, is too strong.”

But the ECB and Brussels run the Euro Zone not France or any individual country. France et al surrendered economic policy, interest rates or forex control when they entered the Euro.

The Bank of England also kept its own key interest rate at 5.25% as the British Central Bank opted for a wait-and-see approach to rising inflation and slowing growth.

But interest rates in the UK must reduce soon, Mervyn King is waiting for the winter effect on fuel bills and inflation to recede then he will REDUCE interest rates most likely in May 2008 and September 2008 to take UK rates down to 4.75%.  The effect might be to yet further strengthen the Euro against GBP as the ECB says that is likely to keep interest rates unchanged for some to time to come. 
 

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