The Cypriot Parliament’s decision against the one-off levy on bank accounts closed the door for a possible rescue package from the European Union and the International Monetary Fund.

With banks closed for an indefinite time until a solution is found, Cyprus needs to find a solution as soon as possible as the European Central Bank made it clear that bank funding will be cut unless the Mediterranean island agrees on a bailout.

The Cypriot government last week rejected a proposed levy on bank deposits to raise €5.8 billion, which euro-area finance ministers backed as a condition for the country’s bailout. The four possible scenarios are 1) the EU giving a full-scale rescue package of €17 billion without compensation, 2) receiving the necessary assistance from Russia, 3) begin bankruptcy proceedings of Cyprus and its banks, 4) accepting a slightly modified rescue package with a levy on deposits which are larger than €100,000.

Federal Reserve chairman Ben Bernanke said that the Fed will keep up its bond buying at a pace of $85 billion a month even as the world’s largest economy and the US job market picked up. The Fed also reiterated its statement that it plans to hold interest rate near zero as long as unemployment remains above 6.5 per cent and inflation is projected to be no more than 2.5 per cent. The inflation rate in February registered an increase of 0.4 per cent to two per cent year on year, in essence, due to higher fuel prices.

The unemployment rate in February fell 0.2 percentage points to 7.7 per cent, which correlates to the downward trend which has been evident since the end of 2009.

Regardless of the weakness in the economy, the key message from the UK Budget was to stick to its austerity plans. In terms of the components of GDP, growth in consumer spending, investment and net exports is expected to be more depressed than was previously expected. But with no obvious case to take a different view of the economy’s potential, the Office of Budgetary Responsibility has at least kept its forecast of trend GDP growth virtually unchanged.

This article was compiled by Bank of Valletta plc for general information purposes only.