The Central Bank of Cyprus, the island’s finance commissioner and the Association of Banks are urging borrowers to seek rapid loan restructuring so that lower installments are guaranteed.
The message was sent during a debate in parliament on Tuesday with major financial players warning that swift action will avert possible loan repayment difficulties due to rising interest rates.
The European Central Bank announced last week that it was raising interest rates by three-quarters of a percentage point for the second consecutive time. Interest rates are expected to rise further in mid-December.
According to the ECB and mainstream economic theory, increasing the price of money by raising interest rates leads to less borrowing and less consumption, thus reducing inflation.
However, inflation is on an alarming rise across Europe and there are fears of an impending recession, as well as the inability of borrowers to repay their loans.
Finance Commissioner Pavlos Ioannou told MPs he had already received a pile of complaints from borrowers.
He specifically referred to a letter in which affected borrowers say their installments will increase to €400 a month – a big enough amount for salary takers.