Newsroom
The war in Iran may be happening hundreds of kilometers away, but for many people in Cyprus, its effects could soon be felt much closer to home, in their electricity bills, supermarket receipts, and even their mortgage payments.
The European Central Bank (ECB) is expected to raise interest rates twice this year as it tries to stop a new wave of inflation triggered by the conflict and rising energy costs, according to a Bloomberg survey of economists.
Most analysts expect the ECB to announce a 0.25 percentage point increase at its next meeting, followed by another increase later in the year, most likely in September. If that happens, the ECB’s key deposit rate would rise to 2.5%.
For the average Cypriot family, the message is simple: borrowing money could become more expensive, and the hope for cheaper loans may have to wait longer.
Higher interest rates are especially important in Cyprus, where many households have mortgages linked to variable interest rates. A rise in ECB rates can translate into higher monthly repayments, putting additional pressure on families already dealing with expensive living costs.
The ECB’s concern is that the war’s impact on energy prices could spread through the wider economy, making everything from transportation to everyday goods more expensive.
“The ECB wants to send the message that it will not stand idly by while inflation rises,” said Daniel Hartmann, chief economist at Bantleon. “It wants to emphasize that it takes the 2% target seriously and will not tolerate persistent overshoots.”
Eurozone inflation has already climbed to 3.2%, up from 1.9% during the first three months of the conflict, and economists warn that further increases are possible.
“The ECB will present the rate hike as a measure to preserve its credibility,” said Arne Petimezas, head of research at AFS Interest. He noted that underlying inflation, which excludes volatile categories like energy, has remained above the central bank’s 2% target since 2021.
At the same time, the ECB faces a difficult balancing act. While inflation is rising, the eurozone economy is slowing. Business activity contracted in May at its fastest pace since 2024, and economists expect the ECB to lower its growth forecasts for this year and next while increasing its inflation outlook.
Many economists now believe any relief in interest rates is unlikely before the middle of 2027, later than previously expected.
Even if the conflict in the Middle East eventually comes to an end, experts warn the economic effects may linger. Three out of four economists surveyed believe the impact of the war could continue for six months or longer after a peace agreement is reached.
For Cyprus, a small island heavily dependent on imported energy and already struggling with high living costs, the developments serve as another reminder that global conflicts can quickly find their way into everyday life, often through the monthly bills waiting on the kitchen table.
