Cyprus had long placed the emphasis in monetary policy on its exchange rate, and this was gradually hardened, with some financial liberalisation and move to indirect monetary instruments, on the road to the adoption of the euro in 2008.

Years Targets and attainment Classification
1974-89 exchange rate set daily by central bank according to unannounced basket, revised 1986; monetary instruments largely ineffective, monetary policy relatively passive; budget deficits important for monetary growth augmented exchange rate fix AERF
1990-91 exchange rate still set by central bank against basket but forex market now has some autonomy; 1988-91 some kind of announced monetary targets but regularly exceeded loose exchange rate targeting LERT
1992-2007 peg to ECU from June 1992, with +/- 2.25% bands, then to euro from 1999, from 2005 within ERM2; margins widened to +/- 15% 2001 but wider bands hardly used; 1992-2000 monetary aggregates ‘monitored’ rather than targeted, often not met; gradual financial liberalisation with Lombard facility and repo OMOs from 1996, interest rate ceiling abolished 2001, central bank independence 2002 and capital controls abolished 2001-3 full exchange rate targeting FERT
2008-14 membership of European Monetary Union currency union CU

Selected IMF references: RED 1977 p64; RED 1983 pp44-46, RED 1986 pp47-8; RED 1987 pp37, 51; RED 1991 pp57-8, 82; SR 1993 p4; RED 1994 pp20, 101; BP 1996 pp11-12, 14; SI 1998 pp28-38; SR 2000 pp12-13; SR 2003 pp7-8.

Additional sources: Syrichas (2008); Orphanides (2008).

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