Cyprus Economy Faces Pinch as ECB Set to Raise Interest Rates

Cyprus families and small businesses are bracing for the pinch as the European Central Bank (ECB) is set to raise interest rates on Thursday. Economist Tassos Yiasemides warns that this move could have severe consequences for the economy, particularly in countries like Cyprus where small businesses rely heavily on loans.

Yiasemides believes that borrowers with variable-rate loans will be hit hardest by the rate increase, which could force them to delay investment, cut hiring, and reduce output. This, in turn, would lead to a decrease in demand across various sectors, including retail, hospitality, tourism, and others.

The rising cost of living and higher loan obligations will weigh heavily on low- and middle-income households, particularly young workers, families with children, and small business owners. Yiasemides notes that inflation has come down from historic highs but remains above the ECB's 2% target, prompting the central bank to adopt a strict monetary policy.

The economist fears that the eurozone may be entering a period of stagflation, characterized by high inflation, low growth, and rising unemployment. He warns that raising rates to combat inflation would hurt economic activity, while loosening monetary policy could risk pushing inflation back up.