Deposit rates in Cyprus remain the lowest in the Eurozone, as revealed by the Central Bank of Cyprus (CBC) in its latest analysis of April 2026 interest rate data. The report highlights a significant lag in the transmission of European Central Bank (ECB) interest rate changes within the Cypriot banking sector compared to other euro area countries.
Deposit rates: Weak Transmission of ECB Rates
The CBC’s findings indicate that Cypriot banks are only partially passing on ECB rate changes to depositors and borrowers. This limitation is particularly pronounced in deposit interest rates, which are currently the lowest across the Eurozone.
Significant Deviations from Eurozone Averages
Cyprus exhibits the largest deviation from the Eurozone average for deposit rates, especially during periods of ECB rate increases. For instance, banks have transferred only a fraction of interest rate hikes to savers, a trend that has persisted even during recent declines in ECB rates.
Fixed-Term Deposits Underperforming
This inadequate response is particularly evident in new fixed-term deposits for households and businesses. As of April 2026, the average rate on new household fixed-term deposits of up to one year stood at just 1.20 per cent, significantly lower than the Eurozone median of approximately 1.8 per cent.
Impact on Savers
The data confirms that Cypriot savers are receiving lower returns on their deposits compared to most of their euro area counterparts, despite changes in broader monetary policy. This situation raises concerns regarding the attractiveness of saving in Cyprus.
Mortgage Lending Reflects Eurozone Trends
In contrast, the CBC found that the transmission of ECB rate changes to mortgage lending in Cyprus aligns more closely with Eurozone levels. Households seeking housing credit are experiencing a more typical pass-through of monetary policy, leading to a more advantageous environment for borrowing.
Corporate Lending Faces Challenges
However, the scenario is different for corporate lending, where the transmission of interest rates remains weaker than in other euro area countries. This inconsistency highlights ongoing structural issues within the Cypriot banking market that hinder effective monetary policy transmission.
Recent Trends in Lending Rates
The CBC’s analysis also noted a recent easing of borrowing costs in Cyprus. The average rate on new housing loans decreased to 3.92 per cent in April, down from 4.14 per cent in March. Similarly, the average rate on new business loans of up to €1 million fell to 4.63 per cent, suggesting a trend towards lower corporate borrowing costs.
Divergence from Eurozone Banking Practices
Despite these reductions in lending rates, the CBC emphasised that the Cypriot banking market continues to diverge from the wider Eurozone, particularly on the deposit side. The pronounced gap in deposit rates remains a point of concern for policymakers.
Decline in Deposits and Lending Growth
April also saw a decline in total private sector deposits and a slowdown in the growth of bank lending, as previously reported by the central bank. These trends reflect the ongoing challenges faced by the Cypriot banking sector in aligning with the broader Eurozone economic environment.
