CYPRIOTS have shown little interest in foreign currency accounts since restrictions were lifted as of May 1, sources in the two main banks said yesterday.
Since last Saturday, Cypriots have the right to open accounts or convert their Cyprus pound accounts into any currency they wish at varying interest rates below those given for Cyprus pound deposits.
The lifting of all restrictions on the movement of capital prompted the Central Bank to raise interest rates by one percentage point on the eve of EU accession in an attempt to avert a currency flight and quash rumours of a devaluation of the Cyprus pound due to uncertainty over the political situation.
A source at Laiki Bank told the Cyprus Mail yesterday that the Central bank’s estimate of £80-£90 million for currency flight over the past four to five months was inaccurate.
According to Central Bank data, from April 15 there has been an outflow of between £85 and £90 million pounds, compared with £65 to £70 million over the same period a year ago.
But the source said the real figure was closer to £165 million. The money was moved off the island into accounts in Athens and London with account holders fearing a devaluation in the wake of a Cyprus settlement and the uncertainty of the country’s financial future, he said.
“But the banks did not lose out,” said the source. “The money was moved to braches of our bank and Bank of Cyprus, mainly in Athens.”
The source said the banks expected the money to begin filtering back into Cyprus now that the political situation had gone onto hold and because devaluation rumours had evaporated.
“It was a temporary move by some people,” said the source. “There is really not a lot of interest in foreign currency accounts and people do not seem interested in moving money at the moment. I think they are waiting to see what will happen and see what way things will develop over the next few months.”
Interest rates on foreign currency deposit accounts are much lower than those of the Cyprus pound, which now stands at around 3.5-5.5 per cent depending on account maturity.
By contrast, euro accounts weigh in at just two per cent interest on deposits at Laiki, sterling at around 3.75 per cent and the US dollar at around three per cent up to £10,000.
Bank of Cyprus (BoC) offers accounts of varying terms. Based on a three-month account, euro deposits can earn roughly 1.5 per cent, dollars approximately 0.5 per cent and sterling around 3.8 per cent. The longer term the account, the more interest can be earned.
For a 12-month account, the euro deposit rate rises to 1.8 per cent, the dollar to 1.2 per cent and sterling to 4.3 per cent. The Cyprus pound long-term rate reaches around five per cent.
“The Cyprus pound interest rate is always more attractive because it is higher compared to the others,” said a source at BoC.
The source declined to comment on whether the banks might wish to discourage foreign currency deposits to safeguard the Cyprus economy by keeping the pound at home.
“We don’t offer advice as such,” said the source. “It depends on people’s preferences and investment characteristics. Some have loans in foreign currencies so it makes sense to have deposits in foreign currencies. Businesses have imports in foreign currencies so again it makes sense.”
He said that so far, however, not a lot of interest had been expressed in foreign currency accounts.
“Of course it’s early days but we have not seen any substantial conversion,” he said. If there were any, he said they were likely to be euro accounts as the European currency was linked to the Cyprus pound, which is pegged to the euro in a 2.25 pa central parity rate of 1.7086.
Some of the reasons people might want to open or convert to foreign currency accounts would be to diversify their financial portfolios or to dabble in currency speculation, “which they are free to do”.
“That would depend on whether you are an expert managing foreign exchange rates,” he said. “The more sophisticated investors are obviously into this.”
