Cyprus's central bank said it backed the government's move to request a bailout from the EU as it would protect its Greek-exposed banking sector from further contagion.
Cyprus yesterday became the fifth euro zone country to apply to the EU's support mechanism offering financial assistance to troubled states.
It follows Greece, Ireland, Portugal and Spain in formally asking for help from the euro zone 17.
The move by Cyprus comes as it readies to take on the European Union's six-month rotating presidency in July.
"In these challenging economic times, in which pressures on public finances are already considerable, it is vital to restore the banking system's ability to promote economic growth as soon as possible," the central bank said.
"It is also necessary to take all the appropriate steps to contain possible future contagion emanating from the operations of Cypriot banks in other countries," it added.
It said financial support from Europe "will help to ensure that these objectives are achieved in a timely and orderly fashion, while safeguarding the stability of our financial system and the economy as a whole".
The central bank supports the government's decision to request financial support from the European Financial Stability, triggered by the need to recapitalise Cyprus Popular Bank that has not been able to secure sufficient private capital by the European Banking Authority deadline of June 30.
The government has not specified how much it needs but said this will be determined during negotiations with European officials. But the government does need money to recapitalise its banks as a consequence of a Greek debt write-down that hurt its financial institutions and it requires additional cash to re-finance debts as it is unable to borrow at reasonable rates.
A European Union diplomat said last week that Cyprus would first ask Russia for a loan of up to €5 billion, having already secured a €2.5 billion low-interest loan from Moscow to cover its refinancing needs for this year.
The Cypriot government said that a write-down of Greek bonds which hit its banks hard pushed it to seek help. Recession-hit Cyprus could also seek a foreign loan from Russia to cover its debt refinancing needs for 2013.
Fitch Ratings yesterday downgraded Cyprus's sovereign ratings, with the rescue request having been widely anticipated for weeks. Fitch said the downgrade was "principally due to Greek corporate and households exposures of the largest three banks - Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank."
Cyprus President Demetris Christofias has called for an emergency meeting of party leaders today to discuss the state of the recession-hit local economy.
