CONSUMERS are likely to welcome the Central Bank’s decision to lower interest rates. But with the excitement, comes the danger, according to many analysts who are warning people not to fall into misleading interest rate offers from banks.
On Wednesday, the Central Bank unexpectedly cut interest rates for the second time in a month in a move analysts said was aimed at preventing a strengthening Cyprus pound nudging the brink of its band against the euro
Dr Stelios Platis, Director of S. Platis Economic Research, welcomed the move.
“This means that borrowing will be cheaper for the public because banks are now able to borrow themselves at cheaper rates. These lower interest rates are set to be put into place, if not in the next few days, then most certainly sometime next week.
“It’s a move which is good for the economy and good for the people.
“Of course, with regards to loans, it depends on which bank you go to, but all the banks will be expected to have the same equal decrease.”
Dr George Syrichas of the Central Bank said yesterday that although the interest rate drop was good from consumers, people still had to be careful. He also explained why the Cyprus pound got stronger after the island joined the ERM2, the exchange rate mechanism that serves as an antechamber for the euro.
“One of the reasons for the drop in interest rates is because we have seen an influx of foreign exchange, which in turn has made the Cyprus pound stronger, especially after April 1 when the island entered ERM2. Since we have joined ERM2, the currency flow has been around £157million, whereas before the number was half that.”
He added: “This decrease is good news for consumers, investors and small to medium business owners because of the lower interests on loans.
“Of course, we are talking about variable interest loans, which are the majority of loans on the island anyway. Recently we have seen more people borrowing money in foreign currencies so with this interest rate decrease we will see more people borrowing money in the Cyprus pound.”
But with the window of opportunity comes danger, according to Syrichas, who warned people not to jump the gun.
“There are several dangers attached to this decrease. One of the most serious is misleading advertisement by some banks. People shouldn’t fall into the trap of these advertisements claiming lower interest rate loans.
“Those advertisements are misleading because they are only applicable for the first year and loans can take longer to repay, like 10 years for example.”
Syrichas also said that within two years the Cyprus pound would be converting to the euro and that variable interest loans would acclimatise to Eurozone rates.
The Chairman of the Consumers’ Association, Petros Markou believes the banks need to inform consumers properly on important changes in interest rates.
“There has to be a better communication between banks and consumers, so people are not misled as they have been in the past. We have all seen misleading advertisements and people should check their pockets before taking on anything that could end up being a financial burden.
“Even today we have people believing that they don’t have to pay interest on their credit card loans when in fact the interest is 12 per cent.”
Platis also warned that people needed to be careful.
“People need to seek professional and expert financial advice before going to get a loan. They need to be careful and carefully check the banks’ APR, their Annual Percentage Rate.
“People should not be fooled because there are no free lunches when it comes to banks.”
