After a decade of record low interest rate levels, Central banks worldwide abruptly shifted their monetary policy in 2022 by increasing interest rates, in an effort to control the surging inflation that reached 40-year highs.
In the first move of its kind in over a decade, on July 27th 2022 the European Central Bank (ECB) raised its three official interest rates by 0.5%, an increase that followed similar measures taken by the US Federal Reserve and dozens of other central banks around the world. In September, the ECB moved even more aggressively to increase interest rates by a further 0.75%, a move that was repeated in November. Another rate hike of 0.5% followed in December.
Naturally, the return of our Ancoria Cash Pension Fund – a Fund that aims to achieve a return in line with international EUR money market rates – has turned positive following years of slightly negative performance.
Cypriot banks have been slow in increasing interest rates on deposits, and this is evident from the return of our Ancoria Local Banks Cash Pension Fund, which invests in deposits of Cypriot Banks. As a consequence, this has created a divergence in the returns of the two funds, illustrated in the table below.
Ancoria Pension Fund
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Performance* (Q4 2022)
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Local Banks Cash Pension Fund
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-0.16%
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Cash Pension Fund
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+0.18%
*Net of Fees, Not Annualised
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For the period 1 October 2022 to 30 December 2022, the Ancoria Cash Pension Fund (International Cash) is outperforming the Ancoria Local Banks Cash Pension Fund by 0.34%.
Cypriot Banks will eventually have to follow suit and increase interest rates on deposits. Until then, the significant outperformance of International Cash over Local Cash is a new reality.
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