Oil may trim Cyprus '06 growth outlook

SURGING oil prices may force Cyprus to cut its 2006 growth outlook to around 4.0 per cent from an initial 4.4 per cent forecast, a senior finance ministry source said yesterday.
The revision would not have any impact on the budget deficit, which Cyprus was committed to lowering to around 1.7 per cent of GDP, the source said.

Oil prices were not expected to have a significant impact on growth in 2005, where the forecast remains close to 4.0 per cent, the official added.

The revision was still in progress.

“As far as 2006 is concerned our outlook was for 4.4 per cent. We believe that at the end of our revision it may be closer to 4.0 per cent,” the official told Reuters.

“Regarding the deficit we have made a commitment to the EU on our target. We will not change this,” he said. During a 2006 budget presentation last week, outgoing finance minister Makis Keravnos last week said the deficit would be 1.7 per cent, contingent on pushing through a raft of cost-savings in the public sector.

The inflation outlook may be upped to 2.5 per cent from around 2.0 per cent, the official said.
European Central Bank economists on Thursday cut the growth outlook in the 12 euro zone economies to 1.8 per cent for 2006, compared to a 2.0 per cent forecast three months ago.
RATES UNCHANGED

Meanwhile, the Central Bank kept its key refinancing rate unchanged at 3.25 per cent during a monthly review yesterday as oil prices weighed on inflationary concerns.

But governor Christodoulos Christodoulou said the decision was only approved by three votes to two, with those in the minority arguing for a cut.

“Three members were in favour of rates staying as they were, two members were in favour of possibly looking at a slight drop,” Christodoulos Christodoulou told journalists. “There were strong arguments for both cases.”
The Bank’s deposit rate would remain at 2.25 per cent and its advances rate at 4.25 per cent, Christodoulou said.
Currency markets had not anticipated an adjustment.
“We noted our concern at the rise in oil prices and the possibility of an impact in the long-term,” said Christodoulou after a scheduled meeting of the board of the Central Bank and the rate-setting Monetary Policy Committee, which operates independently of the Central Bank.
Christodoulou said he did not expect rising prices to affect Cyprus’s growth forecasts for 2004, which are at 4.0 percent. (R)

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