The Association of Cyprus Banks on Tuesday expressed its readiness to adjust interest rates tied to the European Central Bank’s (ECB) base rate immediately after the ECB’s forthcoming meeting on December 12.
“This move will directly impact the monthly instalments of their clients’ loans,” the association said in a statement.
The association pointed out that the ECB is set to hold its final meeting for the year, with the majority of central bankers indicating a likely new rate cut.
“Should a further reduction be decided, it will mark the fourth rate easing since June, with the cumulative decrease exceeding 1 per cent, providing relief to borrowers and businesses,” the association said.
Moreover, the association mentioned that thousands of borrowers with loans linked to the ECB’s base rate will see their instalments reduced without delay.
It also stated that “the ECB’s interest rate reductions, following the containment of inflation, signal lower borrowing costs and indirectly boost economic growth”.
Trade tensions and weak growth push ECB towards rate cuts
According to recent reports, the European Central Bank (ECB) is expected to reduce its deposit rate by 25 basis points (bps), equivalent to 0.25 per cent, at its meeting on December 12.
All but two of the 75 economists polled by Reuters predict this adjustment, marking the fourth such move this year.
The other two economists polled by the agency predict a 0.5 per cent cut.
The agency explained that the reduction comes amid growing concerns over the potential economic impact of US President-elect Donald Trump’s proposed tariffs, which could escalate into a broader trade war.
Moreover, economists suggest these tariffs will pose a more significant challenge to ECB policy than ongoing political instability within Europe, including the recent collapse of the French government.
The ECB’s Governing Council appears aligned on the likelihood of a 25 bps cut, with hawkish members like Robert Holzmann ruling out a larger reduction.
Futures markets indicate over 150 bps of ECB rate cuts by the end of 2025, reflecting expectations of a prolonged period of accommodative monetary policy.
This figure is double the rate cuts anticipated for the US Federal Reserve, signalling continued pressure on the euro, which is expected to remain weak in the near term.
In addition, the majority of economists polled foresee at least two additional quarter-point cuts in the first quarter of 2025, with further reductions likely by mid-year.
By the end of 2025, most expect rates to fall to 2.00 per cent or lower, up from approximately 70 per cent who held this view in November.
Economic growth forecasts for the eurozone have been downgraded, with a median expectation of 1.0 per cent growth in 2025 and 1.2 per cent in 2026.
Inflation, currently at 2.3 per cent, is projected to retreat to the ECB’s 2 per cent target by mid-2025 and stabilise thereafter.
The ECB will update its economic projections at its December meeting, providing further clarity on its policy trajectory.
