The Cypriot economy continues to show remarkable resilience despite increased geopolitical uncertainty, according to the Governor of the Central Bank of Cyprus (CBC), Christodoulos Patsalides, notes, however, that the risks to the inflation outlook remain on the upside, making it necessary to remain highly vigilant and closely monitor developments.
In a written statement, Mr. Patsalides refers to yesterday’s meeting of the Governing Council of the European Central Bank (ECB), noting that in light of the new data and its overall assessment, “we judged that keeping key interest rates at their current levels allows the ECB to effectively manage the current uncertainty, while remaining firmly committed to restoring and maintaining inflation at its medium-term target of 2%.”
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
The President noted that the ECB’s Governing Council decided, at its meeting yesterday, to keep key interest rates unchanged, amid intensifying geopolitical tensions and inflationary pressures linked to the energy shock.
As noted, inflation in the euro area rose to 3.8% in September from 3.2% in August, mainly due to the rise in oil prices. At the same time, it reports that financial conditions have tightened as a result of previous interest rate hikes and the rise in long-term government bond yields, which has partially limited the pass-through of higher energy prices.
The Governor notes that the indirect effects of the energy shock have so far remained limited, with no significant secondary effects on inflation, as is also evident from wage indicators. He adds that inflation expectations remain generally subdued.
Referring to economic activity in the euro area, he notes that it remains resilient, although uncertainty and tighter financing conditions are expected to weigh on growth. He also points out that the ECB remains committed to bringing inflation back to 2% and keeping it at that level over the medium term.
As for Cyprus, inflation stood at 5.2% in September, with energy prices rising 21% and services prices 7.1%. In contrast, core inflation, which excludes energy and food, fell to 3.9% from 4.5% in August, indicating an easing of underlying inflationary pressures.
Despite this decline, the risks to the inflation outlook remain on the upside, the Governor points out, noting that continuous monitoring of developments is required.
At the same time, he refers to the resilience of the Cypriot economy, which, as he notes, is underpinned by strong domestic demand, favorable labor market conditions, and sound public finances. High employment and a strong labor market support household disposable income and private consumption, while the fiscal policy space available allows for targeted measures to support vulnerable groups without placing an excessive burden on public finances.
Furthermore, the Governor refers to the banking sector’s strong capital adequacy and liquidity, as well as to the broadening of the economy’s productive base, with the growth of the information and communications technology sector helping to absorb external shocks.
Finally, it notes that the recent upgrades to Cyprus’s credit rating enhance its attractiveness as an investment destination, supporting the inflow of foreign capital and growth. It adds, however, that maintaining prudent fiscal policies remains essential to protect the economy from inflationary pressures.
