ECB figures underline Cyprus deposit rate disconnect
Borrowing costs for businesses across the euro area increased in June while mortgage rates remained broadly stable, according to new figures released by the European Central Bank (ECB), with the latest data reinforcing the contrast between the eurozone and Cyprus, where deposit rates continue to lag despite a recent uptick.
The ECB said its composite cost-of-borrowing indicator for new corporate loans rose by 15 basis points to 3.79 per cent in June, while the equivalent indicator for new housing loans remained broadly unchanged at 3.51 per cent.
At the same time, banks across the euro area raised returns on deposits, with the composite interest rate on new fixed-term corporate deposits increasing by 17 basis points to 2.21 per cent and the rate on new household fixed-term deposits climbing 13 basis points to 2.09 per cent.
The euro area figures were published as the Central Bank of Cyprus (CBC) released its own June interest rate data on Monday, showing that deposit rates in Cyprus also increased during the month but remained well below eurozone levels.
The interest rate on household deposits with an agreed maturity of up to one year rose to 1.42 per cent in June from 1.25 per cent in May, while the corresponding rate for deposits by non-financial corporations increased to 1.41 per cent from 1.31 per cent.
Although both measures moved higher, Cyprus continues to offer some of the lowest deposit rates in the monetary union.
According to the CBC, the weak pass-through of ECB monetary policy to depositors reflects structural characteristics of the domestic banking system, including exceptionally high liquidity levels and the relatively small size of the sector.
The central bank pointed out that Cyprus’ Liquidity Coverage Ratio stood at 310 per cent in June 2026, compared with a European Union median of 189 per cent and an average of 158 per cent, reducing competitive pressure on banks to raise deposit rates.
The CBC also said the transmission of both rising and falling ECB policy rates to deposits remains weaker in Cyprus than in almost every other eurozone country for both households and businesses.
By contrast, lending rates in Cyprus remain broadly aligned with those elsewhere in the euro area.
The CBC said the weighted average interest rate on new housing loans was 0.2 percentage points below the eurozone median, while rates on new corporate loans were 0.3 percentage points above it.
Its June figures showed that mortgage rates edged down to 4.04 per cent from 4.06 per cent in May, while consumer lending became cheaper, with interest rates falling to 6.50 per cent from 6.95 per cent.
Business borrowing costs, however, increased, with rates on loans of up to €1 million rising to 4.32 per cent from 4.27 per cent and rates on larger loans climbing to 4.07 per cent from 3.85 per cent.
The ECB’s June data similarly showed higher borrowing costs for businesses across several loan categories, while consumer lending across the euro area eased to 7.50 per cent.
The CBC also reported a sharp increase in lending activity during June.
Pure new lending reached €626.20 million, up from €361.90 million in May, driven largely by a surge in loans exceeding €1 million, which jumped to €387.50 million from €121.50 million.
Meanwhile, the central bank said Cyprus’ mortgage market continues to shift towards fixed-rate borrowing.
The share of new housing loans carrying variable interest rates has fallen to just 10.9 per cent in June 2026 from almost 100 per cent at the beginning of 2022, placing Cyprus below the eurozone median.
According to the CBC, the trend suggests borrowers are increasingly choosing fixed-rate products for the first three to five years of their loans, reducing their exposure to future interest rate movements while bringing the structure of the domestic mortgage market closer to broader eurozone practice.