A new reduction in lending rates is recorded in Cyprus following the latest European Central Bank (ECB) decision last week. The ECB's Board of Directors decided to cut its rate by 0.25%, bringing the total reduction over the last three rate cuts to 1.1%. In its last three meetings, the ECB’s Board of Directors decided on the following cuts: 0.25%, 0.60%, and 0.25%.

Specifically, the deposit facility rate, through which the ECB directs its monetary policy, now stands at 3.25%. The main refinancing operations rate, which allows banks to borrow funds from the ECB against broad collateral, is now 3.40%, while the marginal lending facility rate, which offers overnight credit to banks against similar broad collateral at a predetermined rate, is 3.65%.

With declining rates, a further reduction in the cost of money is anticipated, boosting economic growth, expanding credit, and achieving satisfactory growth rates. These developments are expected to enable banks to continue financing the economy. For mortgage loans, the lower cost of money is expected to “support” households amid prolonged high prices, with continuous increases in the costs of goods and services.

Bank customers with variable-rate mortgage loans based on the ECB Base Rate will begin to see a significant reduction in their monthly payments in proportion to the days of the month and then monthly (-0.25%) compared to the previous month.

These particular loans adjust almost immediately. Borrowers who felt the initial impact of rising rates are now the first to “experience” the rate cuts.

In Cyprus, banks are promptly responding to the ECB’s rate reduction decisions by lowering the reference rate on loans linked to the ECB Base Rate. According to banking sources, the 0.25% reduction is considered a new positive development for clients, impacting their loan monthly payments.

Additionally, for months now, a reduction in rates has begun for several mortgage loans linked to the Euribor. Indicatively, the one-week Euribor stood yesterday at 3.15%, down from 4.14% in October 2023.

The Euribor rate is affected by ECB interest rate fluctuations. The Euribor has been decreasing for approximately 10 months, with the 12-month rate currently close to 2.57%, based on data from yesterday.

According to banking sources, "this rate, at which one bank lends to another in the European interbank market, serves as a reference rate for various transactions such as loans, bonds, and other agreements. It is a market reference rate without collateral and is calculated for various durations (one week, one month, three, six, and twelve months).” The 3-month Euribor, the most widely used, is a crucial reference rate in European financial markets and represents the average rate at which a selection of large European banks lends to each other on an unsecured basis for a period of three months (or 90 days). According to yesterday’s data, it stands at 3.05%.