Cypriot capital controls are weighing on markets this morning. The draconian measures have been put in place, to slow the pending bank run, as investors attempt to pull assets from the crippled Cypriot financial system. Individual accounts with balances below €100,000 will be “unaffected” by the haircut, however with large balances expected to receive significant haircuts, funds are expected to exit the country. The mood is reported to be hostile in Cyprus, as residents feel betrayed by their European counterparties. Someone in a meeting yesterday said to me:
“Cyprus has already left the single currency; the Euro the Cypriots have is not freely accessible and does not hold the same value as the Euro held in Berlin”
At 10am (GMT) the banks in Cyprus are set to reopen for 6 hours, following the closure of the country’s banks for 12 consecutive days.
Restrictions in place:
-€300 maximum ATM withdrawal per day
-Restrictions on debit/credit use overseas capped at €5,000
-Cypriots travelling abroad only allowed to leave the country with €1,000
-The central bank is reportedly to “scrutinise all commercial transactions between €5,000 and €200,000
The outflow of funds from Cyprus is a major concern, as a bank run could lead to further haircuts, and the potential retraction in GDP could require a 2nd bailout.
Wednesday evening Moody's lowered Cyprus's country ceilings to Caa2