Pressure on the Central Bank from all sides to cut interest rates seems likely to have little effect when the Monetary Policy Committee meets on Thursday this week.
Pointing to improvements in several key economic indicators, both the ruling and main opposition parties as well as the Finance Minister Takis Klerides have called for an immediate cut in interest rates. Needless to say, much of the pressure is connected with events at the Stock Market. After the roaring bull market in 1999 and early 2000 turned Cypriots into insatiable stock market investors, those left without shirts later on in 2000 (most of them) hanker after the good times, and believe that the authorities should help them out - a few months back it was compulsory investment from the nation's pension fund that would cure everything; now it's higher interest rates.
But the Central Bank says that interest rate policy is based on economic fundamentals, and is not dictated by stock market considerations.
It's true that the deficit is now expected to come in below 3% (meeting the Maastricht criteria), that inflation is down to 2.3%, and that growth is holding up well at 4%. So why should interest rates hover above the 7% level?
The MPC is an independent body, and may recognise economic progress with a symbolic cut, but it's not likely to jeopardise monetary stability with a cut of the size needed to jerk the stock market out of its slough of despond. Anyway, after a binge as glorious as the one Cyprus had, the hangover is bound to last quite a long time, regardless of interest rates.
“The stock market is plagued by a lack of confidence,” said the Central Bank, quite correctly.
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