The European Central Bank is cutting expectations for a final euro interest rate reduction at the end of 2025, with the majority of Monetary Policy Council members backing the stance.
The final meeting on 18 December is not expected to bring pleasant news for borrowers, but the cost of money will at least remain stable and from 2026 the ECB is expected to follow its usual “wait and see” approach.
The ECB has cut rates by a total of two percentage points in the year up to June but has kept them unchanged since then, examining whether it has done enough or if more is needed to prevent excessive falls in inflation.
ECB Executive Board member Isabel Schnabel, in an interview published on Monday in Bloomberg News, did not use the word “cut” for rates but “increase”.
The ECB’s next move may be raising rates instead of cutting as some still expect, but this will not happen in the near future, she said.
The German adviser, who is among the ECB’s “hawks,” described the risks for the economy and inflation as upward.
She stressed that new growth forecasts may be revised higher at the December meeting, where analysts see the deposit rate remaining at 2% for a fourth time.
She also stressed that the ECB must closely monitor whether long-term phenomena, such as changes in the economy’s potential and the impact of artificial intelligence, make monetary settings that would otherwise be appropriate excessively loose.
“We need to monitor whether our policy becomes more accommodative over time, and possibly excessively accommodative, so it will be the appropriate time to think about another change in rates,” she said.
The assessment for stable ECB rates and no word of cuts has helped banks, as interest income remains stable in the second half of the year and is estimated to remain stable, helping in the preparation of operational plans for 2026.
Interest income steadily constitutes the largest part of total income and thus remains the most critical element for profitability, which is favoured by ECB monetary policy decisions.
The Central Bank of Cyprus announced a few days ago that the level of loan interest rates on existing loan balances in Cyprus is approaching the corresponding eurozone median, with the margin at zero for households and limited to 0.4% for non-financial corporations.
The level of new loan interest rates in Cyprus is comparable with the eurozone median.
Specifically, the weighted average interest rate margin for new loans to households for house purchase is at -0.3%—lower than the eurozone median—whilst for non-financial corporations the corresponding margin is limited to just 0.1%.
The interest rate for new housing loans in October increased to 3.73%, compared with 3.63% the previous month. The interest rate for loans to non-financial corporations for amounts up to €1 million showed an increase to 4.39%, compared with 4.32% the previous month.
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