11.07.2022
In this ever-changing global environment, we must be proactive, flexible, transparent and quick in our decisions and actions in a consistent and coordinated manner, said the Governor of the Central Bank of Cyprus Konstantinos Herodotou at the 26th Annual Government Economists Roundtable in Greece.
He also noted that the development of the situation with inflation will determine the monetary policy of the European Central Bank after September.
“Incoming inflation data and an assessment of the outlook will determine the pace at which we continue to gradually normalize our monetary policy beyond September to meet our medium-term inflation target of two percent,” he said.
He added that wider and stronger inflationary pressures, which could dampen inflation expectations, could require faster rate adjustments.
The governor noted that banks need to emerge healthy from the pandemic and that the consequences of the Russian invasion of Ukraine are not yet fully apparent . “Therefore, banks need to closely monitor the most vulnerable sectors in order to respond in a timely manner to any deterioration in the financial situation of their customers and credit risk.”
He added that the structural weaknesses of banks need to be addressed through effective digitalization and governance strategies to ensure the medium-term sustainability of the industry and the transition to a more socially responsible banking model.
He also said that emerging risks such as climate, environmental and cyber risks need to be addressed, measured and fully incorporated into banks’ risk management frameworks, policies and procedures.
Herodotus noted that further deepening of the EMU could help further improve the resilience of the banking sector and cope with future shocks, while stimulating economic growth. The completion of the banking union, he said, would mark the creation of a truly single European banking market, where cross-border economic transactions would be carried out freely, and would also serve as a safeguard against possible fragmentation initiatives or actions.
The Governor said that in this highly uncertain economic environment, monetary policy has become a tricky balancing act to bring down inflation without doing too much damage to the 2023 economic recovery. However, he added that too little and too late action could require more aggressive action, which could affect future growth.
