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The European Central Bank (ECB) is widely expected to cut its key interest rates by 0.25% this Thursday, a move that could bring welcome relief for borrowers and banks in Cyprus. Analysts see the decision as a "smooth step" toward reaching the ECB’s inflation target of 2% and one that could ease borrowing costs across the Eurozone.
According to Panayiotis Rougalas, if approved, the deposit rate will drop to 2%, the main lending rate to 2.15%, and the emergency borrowing rate to 2.4%. That means lower loan costs for households and businesses and potentially more lending activity, as people and companies feel more confident to borrow and invest.
In Cyprus, lending is already picking up. The latest figures show a steady rise in loans during the first quarter of 2025, with April alone seeing €169 million in new credit. The trend has been fueled by falling interest rates and improving economic sentiment. Banks like Bank of Cyprus and Hellenic Bank have reported strong lending performance, helped by growing demand and healthier balance sheets.
The expected rate cut also lowers the risk of loan defaults, which is good news for the banks. As borrowing becomes more affordable and businesses recover, banks see fewer bad loans, a win for both lenders and the broader economy.
While the ECB may take a more cautious approach to future cuts, this week’s likely decision signals a positive shift for consumers and businesses alike. With "cheaper money" flowing into the market, Cyprus’ banking and real estate sectors are expected to keep gaining momentum.
