ECB’s Herodotou: Cyprus Economic Outlook Remains Positive, Monetary Policy to Reduce Inflation Further

31 August 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Constantinos Herodotou on Thursday said that prospects for the economy of Cyprus were good and that high inflation would continue to subside as ECB monetary policy unfolded its impact.

In a foreword to the latest economic bulletin of the Central Bank of Cyprus, which he heads, Herodotou said, ‘Overall, the Cyprus economy continues to grow satisfactorily in 2023, and despite adverse geopolitical developments, the outlook remains positive.’

Cypriot banks were sufficiently capitalised and global sector volatility had not had an impact on them, he said.

‘The timely implementation of additional structural reforms, the strengthening of digital and green growth, as well as the maintenance of fiscal margins, will further strengthen the resilience of the Cypriot economy and the economic stability of the country’, he said.

Domestic inflation had declined to a two-year low, ‘mainly a consequence of the normalization of energy prices but also of the single monetary policy in the Eurozone, which is expected to have a further effect due to the time lag of its transmission’, he said.

Underlying inflation was still high, ‘mainly due to the maintenance of domestic demand at high levels as a result, in part, of wage growth’, he said.

‘At the same time, these high underlying inflationary pressures reinforce the need, inter alia, for targeted fiscal policy so that it works as supportively as possible towards a timely return of inflation to the ECB's medium-term target of 2%’, he added.

Cypriot inflation on average this year was expected to measure 3.3% after 8.1% last year, with a further weakening of price pressures over the next two years, he said.

Inflation in 2025 would be at 2%, ‘mainly due to the expected further impact of the single monetary policy in the euro area as well as the expected further normalization of energy prices and the remaining main HICP categories’, he said.