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However, growth is expected to pick up slightly to 3.7% in 2007, far short of the government’s forecast of 4.2% it dubbed as “optimistic” as the island is on the verge of joining the eurozone in January 2008.
Cyprus could be in trouble over the way it taxes second hand cars as the European Commission decided to send a “formal request for information” over th tax rules on registration of EU-imported used cars. The main stumbling blocks are the way Cyprus applies tax on CO2 emissions and the issue of depreciation,
which appears to impose an excessive tax on second hand imports.
The Monetary Policy Committee of the Central bank of Cyprus decided to keep interest rates unchanged at 4.25% for marginal lending, compared to a 3.50% equivalent in the euro area. The minimum on the main refinancing rate stays at 3.25% (2.50% in eurozone), and the deposit facility is at 2.25% (1.50% in eurozone).
The RICS European housing review said that the Cyprus property market will remain constant in 2006, but on an upward trend as the moderate to low interest rates in the coming years, due to Euro accession, as well as low inflation and unemployment, are expected to help.