The average interest rate on housing loans (5.16%) returned to levels from eleven years ago in December 2023, just marginally below the December 2012 level of 5.32%.
The ECB’s policy to raise interest rates to contribute to reducing inflation to 2% has resulted not only in significantly higher loan instalments for borrowers but also in a limitation of loan demand.
According to data released yesterday by the Central Bank, new loans for home purchases decreased to €161.4 million (of which €90.8 million were net new loans and €70.6 million were restructurings), compared to €237.7 million in the previous month (of which €87.8 million were net new loans and €150 million were restructurings).
In December 2022, new housing loan disbursements were €95.8 million, and restructurings were €8 million.
The interest rate for loans to non-financial corporations up to €1 million decreased to 5.62%, compared to 6% the previous month.
The interest rate for loans to non-financial corporations above €1 million increased to 5.73%, compared to 5.59% the previous month.
New loans to non-financial corporations up to €1 million decreased to €85 million (of which €57.6 million were net new loans and €27.6 million were loan restructurings), compared to €91.5 million the previous month (of which €42.4 million were net new loans and €49.1 million were loan restructurings).
New loans to non-financial corporations above €1 million increased to €435.6 million (of which €150.2 million were net new loans and €282.2 million were loan restructurings), compared to €381.9 million the previous month (of which €99.7 million were net new loans and €282.2 million were loan restructurings).
After ten consecutive interest rate hikes and three meetings of the ECB’s board without further increases, yesterday the Central Bank Governor, Constantinos Herodotou, who met with Finance Minister Makis Keravnos, limited his statement to saying that there would be reductions by 2024, without specifying the timing.
As he explained, assuming there are no new unexpected developments, a de-escalation of ECB interest rates is expected, emphasizing the need to adhere to inflation data so that the reduction in interest rates occurs at the appropriate time.
Regarding where ECB interest rates are heading, given the slowdown in inflation, Mr. Herodotou described it as “very good news” that inflation in the Eurozone and particularly in Cyprus has made significant progress, indicating a de-escalation.
