Cyprus central bankers support rate hikes

Central Bank of Cyprus Governor Constantine XI Palaiodto said he was in favor of the European Central Bank’s gradual increase in key interest rates, leaving options open, and the ECB considered the impact of each increase and responded accordingly. He emphasized the need to act.

He spoke with CNBC on Wednesday as a bystander at the ECB Forum on Central Banks in Sintra, Portugal, saying the ECB is preparing tools to tackle the fragmentation of government bond yields in the market. But he added that there was no final decision. yet.

“It needs to be big enough and powerful enough to be effective, but it needs to be designed to avoid ethical risk issues,” he said.

He also expects eurozone inflation to peak this year, with the latest figures showing a decline next year and a decline towards the ECB target of 2024 (2%).

Asked about the pace of rising interest rates, Herodotou said he is a supporter of the step-by-step approach and accepts options. He recalled that the normalization of expansion policy began in December, the Covid-19 Pandemic (PEPP) emergency asset purchase program ended, and the APP program ended in July. As a result, the ECB announced its first rate hike in July, followed by a new rate hike in September.

“It’s important to be aware of the uncertainty due to the war in Ukraine and the surprises associated with energy prices,” he said.

“Therefore, I would like to gradually raise interest rates. We will announce a 25 basis point hike, wait for the economic reaction, and then continue to rise as a result,” he said, and a step-by-step approach is also good for the economy. He added.

Asked if the cycle of growth would be completed this year, he said it didn’t seem to be the best scenario for the eurozone.

Regarding the interrelationship between the Cyprus economy and Russia, Mr. Herodto said there was no dependence on the Russian economy. In particular, he explained that only 4% of Cyprus lenders’ total deposits have Russian ultimate beneficiaries, while only 0.7% of total loans belong to Russians. Cyprus central bankers support rate hikes

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