21.02.2022
Finance Minister Konstantinos Petrides confirmed that European monetary authorities are considering raising interest rates to combat high inflation.
Speaking at a conference on the future of Europe organized by the Glafkos Clerides Institute, the minister’s comments were interpreted as confirmation that Cyprus was in favor of raising interest rates to control inflation.
The EU’s central bank is mulling over the idea, sparking debate among member states and academia.
Petrides praised the many benefits of Cyprus’ EU accession, arguing that accession saved the country from a much worse fate. “If the country had not been an EU member state and a member of the eurozone, during the financial crisis of 2013 we would have found ourselves today as Turkey. The minister said the pandemic caused “cardiac arrest” in the EU as legal restrictions on the economy were introduced for the first time.
Petrides said the much-criticized EU has shown a quick response to the change in monetary policy and the issuance of a joint sustainability fund debt instrument. However, he warned that two years later, Europe still faces many challenges due to the pandemic. “We should not underestimate EU fiscal rules as they have led to a strong euro and prosperity. Debt has risen and many countries urgently need to address this problem. Cyprus is not among those countries because we have successfully handled the situation.”The Minister added that long periods of low interest rates are associated with the inflation recorded today, high real estate prices and the rise in prices of many products. Petrides said EU inflation is similar to 1980-81, but disagrees with those who say it is temporary. He said the EU must be prepared to manage it with money.
It is understood that Petrides was considering arguments against raising interest rates put forward by the Central Bank of Cyprus. In comments made by US network CNBC, Bank of Cyprus Governor Konstantinos Herodotou said that increased interest would not solve the problem. Herodotus said the CBC expects inflation to ease in the coming years, highlighting the need for more action from the EU. The ECB estimates that it noted that inflation is expected to decrease in 2023 and 2024. Herodotus argued that any increase in interest rates would not affect the main source of inflationary pressure caused by rising energy prices and supply chain disruption.
