The small size of the Cypriot economy and the surplus liquidity of the banking sector contribute to the adjustment of interest rates at a slower pace than in larger Eurozone economies, Central Bank of Cyprus Governor Christodoulos Patsalides said on Monday, speaking before the Finance Committee on the 2025 state budget.

"The small size of the economy contributes to a slower adjustment of interest rates than in larger economies. The pace of adjustment is further slowed down by the highly excess liquidity of the Cypriot banking sector - the loan-to-deposit ratio stands at 49.3% compared to 106.5% in the EU", Patsalides said.

He noted that according to recent data, lending rates in Cyprus have been trending downwards in most loan categories, particularly corporate loans.

The average interest rate for new loans to businesses was at 5.32% in September from a peak of 6.06% in October 2023, in line with the downward trend in Euribor. The average interest rate for new mortgage loans stood at 4.53% in September, down 0.66% from a high of 5.19% in January 2024.

Deposit rates are also on a downward trend, with the average interest rate on new household term deposits of up to one year at 1.98% in September, compared to 2.24% in March. Deposit rates to businesses remain stable at 2.14% in September, close to the yearly average.

Patsalides said that the CBC is not satisfied from the gap between deposit and lending rates, but as a supervisor, CBC does not, however, have the right to intervene in any way, apart from announcing the interest rates for transparency purposes.

He estimated that on the next ECB meeting on 11-12 December interest rates will be lowered, noting that interest rates should be reduced gradually and that there should not be large fluctuations affecting economies.