The 2026 surplus budget reinforces the economy’s steady growth trajectory, but further structural reforms are needed to contain the upward trend in inelastic spending, Central Bank of Cyprus (CBC) Governor Christodoulos Patsalides said Monday during the meeting of the House Finance Committee on the 2026 State Budget.
Patsalides also informed MPs that on the basis of a study which was carried out in September 2024, the Bank has submitted recently to the government a comprehensive proposal and draft legislative amendments for the reform of the Central Bank's governing structure based on the Deutsche Bundesbank model, noting the need for reform in order to enhance its participation in the EU and to more effectively meet future challenges.
In his presentation, Patsalides initially referred to developments in the Eurozone, noting that the Eurozone economy grew by 1.3% in the first half of 2025, while the Eurosystem’s most recent forecasts show growth of 1–1.3% in 2025–2027, supported by consumption, employment, public spending and more favourable financing conditions.
Regarding inflation, he said that, influenced mainly by decreases in energy prices and the appreciation of the euro, it has receded and is moving close to the 2% target, while it is expected to be 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027, with continued pressures from food prices, which burden disposable income, but that are expected to weaken in the medium term.
Regarding the Cypriot economy, the CBC Governor said that it maintains strong momentum and resilience, with Gross Domestic Product growing by 3.3% in the first half of 2025 (compared to 1.3% in the Eurozone), while the CBC's most recent forecasts show growth of 3.3% for 2025 and around 3% for 2026–2027.
He added that the labour market remains resilient, with unemployment at 4.7%, very close to full employment, while inflation is expected to decline to 1% in 2025 and fluctuate around 2% over the next two years.
The gradual easing of the ECB’s monetary policy contributed to the significant de-escalation of interest rates on loans to businesses and households, Patsalides also said, adding that the average interest rate on new business loans decreased by almost 2 percentage points since 2023, while a higher decrease was recorded as regards housing loans.
In this context, the difference in interest rates between Cyprus and the countries Eurozone median has generally been on a downward trend in the recent period, he noted, with the weighted average interest rate on all loans to households reaching 4% in August 2025, a rate which is fully aligned with the Eurozone median, he said.
CNA/KA/EAN/EPH/2025
ENDS, CYPRUS NEWS AGENCY
