MONETARY POLICY

OF
CENTRAL BANK OF
CYPRUS
Iliescu Mihai
Bustiuc Vlad
Aurelio Ciro

The main objective of the Central Bank of

Cyprus is price stability - target inflation.
The fundamental feature of inflation
targeting is announcing an explicit
quantitative definition of price stability.
Usually there is defined a low inflation rate
and the achievement of this goal over time
is the primary goal and responsibility of the
central bank.

There is some variation in the practical

application of the objective of price stability
in a time where the horizon objective is to
be attained.
Some central banks focus on achieving a
clear level of 2%, at least initially some
were quite reluctant to provide a relevant
time horizon, for example suggesting that
the policy should be such that inflation may
be always expected to return to its target
within two years.

But a commitment to price stability as key

operational objective of a central bank is
targeting inflation by any means. Rather, it
is a common feature of all monetary policy
frameworks, which could eventually be
identified as generally consistent with good
policy practices.
This is best understood in light of the almost
universal consensus regarding the benefits
of price stability in monetary economists
that have evolved in the second half of the
20th century

The avoidance of prolonged inflation and

deflation and ensuring price stability
contributes to achieving high levels of
economic activity and employment by
improving the transparency of the price
mechanism, lower risk inflation premiums of
interest rates , reducing distortions of
inflation or deflation and preventing a fair
redistribution of wealth and income due to
unexpected inflation or unexpected
deflation.

Consumer prices in Cyprus fell by 2.1% year

on year. The cost of food (-1.5% from -4.6%
in April) and the housing and utilities (-8.2%
-6.8% from) decreased at a slower pace
while the prices of transport (-6.89 percent
from -5.95 percent), decreased further.
On a monthly basis, consumer prices fell 1.3
percent. The inflation rate in Cyprus on
average 3.92% from 1951 to 2016. The
inflation rate in Cyprus was reported by the
Statistical Service of the Republic of Cyprus.

Rate of inflation 2015-2016

Source: www.tradingeconomics.com

We can see inflation below the last five years, if

by 2013, it recorded positive values towards the
end observe a sharp drop in reaching its negative
and preserving so far and amounted to 2.13%
Rate of inflation 2015-2016

Source: www.tradingeconomics.com

It is expected that the inflation rate in Cyprus to reach up to

-1.70% by the end of this quarter and the next 12 months, the
inflation rate to reach 0.20% value.
In the long term it is expected that inflation will reach
somewhere around 3% by 2020.

Foresight

Tools of monetary policy in Cyprus

The main purpose of an offer regulate money and
credit in the economy, they are available next set
of Euro system monetary policy instruments:
Open Market Operations
Permanente Facilities
Minimum Reserves
Programs asset acquisition
In the present in Cyprus ,the rate of the marginal
lending value is recorded at 0.25%, the deposit
facility recorded of -0.40% negative value.

Conclusion
On June 3, 2016 Departamenutul of Statistics of
the Central Bank of Cyprus has released
statistics on interest rates applied by monetary
financial institutions in Cyprus to deposits and
loans in euros with reference to the month of
April 2016 in which stinks to form an objective
opinion of the situation current Cypriot banking
system.
Interest rate on deposits from households with
an agreed maturity up to one year increased to
1.58% compared to 1.52% in the previous month

The interest ratecorrespondingdepositsofnonfinancial corporationsalso recordedanincrease

to1.51%compared to1.36%in the previous
month.
The interest rate onconsumer loansfell
to4.36%compared to4.47%in the previous
month.
The interest rateon loansfor house
purchaseincreasedmarginallyto3.13%compar
ed to3.11%in the previous month.
The interest rateon loans tonon-financial
corporationsforamounts up to 1
milliondecreasedby4.14%compared
to4.39%in the previous month.

In contrast, the interest rate on loans to

non-financial corporations for amounts over
1 million increased up to 4.61% compared
to 3.30% in the previous month.
This increase in interest rates apply to new
loan contracts and existing contracts but
have been renegotiated.

Bibliography

Athanasios Orphanides, Governor of the Central Bank of

Cyprus 2009
European Central Bank; Banking Structures Report;
November2013
Monetary and financial Statistics May 2016; Central
Bank of Cyprus Eurosystem; Nicosia Cyprus
Structural Indicators for the EU Banking Sector online
Page last updated on 01-07-2015-151801
http://data.imf.org/regular.aspx?key=60949720
http://www.centralbank.gov.cy/nqcontent.cfm?a_id=9837
http://www.centralbank.gov.cy/nqcontent.cfm?
a_id=15396
http://www.tradingeconomics.com/cyprus/inflation-cpi