The transmission of European Central Bank (ECB) interest rate changes to the Cypriot banking market remains weaker than in most Eurozone countries, according to a new analysis by the Central Bank of Cyprus (CBC) accompanying April 2026 interest rate data.
The analysis shows that Cypriot banks pass on ECB interest rate changes to depositors, and in some cases borrowers, to a lesser extent than their European peers, with the largest divergence recorded in deposit rates, which remain the lowest in the Eurozone.
Lowest deposit rates in the Eurozone
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According to the CBC, deposit rates in Cyprus now represent the most significant deviation from the Eurozone average. During the ECB's monetary tightening cycle, Cypriot banks transferred a smaller share of interest rate increases to depositors compared with most euro area countries. Likewise, the adjustment during the recent period of rate cuts has also been more limited.
This trend is particularly evident in new term deposits by households and businesses, where Cyprus records one of the weakest levels of monetary policy transmission in the Eurozone.
Indicatively, the average interest rate on new household term deposits with a maturity of up to one year stood at 1.20% in April, remaining significantly below the Eurozone median of around 1.8%.
Mortgage lending closer to the Eurozone average
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The picture differs on the lending side. The CBC finds that the transmission of ECB interest rate changes to mortgage loans is generally in line with Eurozone levels.
However, the pass-through of both interest rate increases and the recent rate cuts to business loans remains weaker than in other euro area countries, highlighting continuing structural characteristics of the Cypriot banking market that affect the monetary policy transmission mechanism.
Borrowing costs continue to ease
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The analysis accompanies the April interest rate statistics, which show a further easing in borrowing costs.
The average interest rate on new housing loans fell to 3.92% in April from 4.14% in March, while the corresponding rate on new business loans of up to €1 million declined to 4.63%.
Despite the reduction in lending rates, the CBC notes that the Cypriot market continues to differ from the rest of the Eurozone, particularly on the deposit side, where the gap with European averages remains significant.
The report also recalls that total private sector deposits declined in April, while the annual growth rate of lending slowed, developments that had already been highlighted by the Central Bank earlier this month.
CNA/TNE/EPH/2026
ENDS, CYPRUS NEWS AGENCY
