The Cyprus Central Bank said on Wednesday that financial institutions have agreed to reduce relatively high interest rates to ease the pressure on borrowers in the bailout-hit eurozone economy.
Central bank governor Panicos Demetriades met bank bosses to discuss a gradual reduction of interest rates to ease pressure on an economy in sharp recession.
"At the end of the meeting, which took place in a climate of understanding, the governor and representatives of financial institutions agreed to implement the proposal for a gradual reduction in deposit rates from May 1," said a central bank statement.
"It should be noted that implementation of the proposal will lead to a decline in lending rates," it added.
Along general lines, financial institutions that offer interest on deposits that exceeds euribor plus 300 basis points must maintain additional equity to cover the amount, the bank said.
This will oblige financial institutions that offer interest rates above 3.1 percent - currently the average is around 4.5 percent -- to ensure they have more capital in reserve to reflect the higher interest paid.
Central bank spokeswoman Aliki Stylianou said this did not mean that interest rates would drop automatically.
"Our circular requires banks to maintain additional own funds for new or renewed deposits (as of May 1) whose interest rates are higher than the relevant Euribor + 300 basis points."
Banks have been operating under stringent capital controls since they reopened on March 28, after a near two-week lockdown prompted by fears of a run on deposits.
A bail-in from depositors was a key element of a deal which Nicosia struck with its EU partners and the International Monetary Fund last month to help fund a 23 billion euro ($30 billion) rescue package.