In this ever-changing global terrain, we need to be proactive, flexible, transparent and fast in our decisions and actions in a coherent and coordinated manner, said Cyprus’ Central Bank’s Governor Constantinos Herodotou at the 26th Annual Economist Government Roundtable in Greece.
He also noted that the developments concerning inflation will determine European Central Bank’s monetary policy beyond September.
“Incoming inflation data and the outlook assessment will determine the pace with which we will continue to gradually normalise our monetary policy beyond September, in order to deliver on our two per cent medium-term inflation target”, he said.
He added that broader and intensified inflation pressures that would threaten to de-anchor inflation expectations could require quicker rate moves.
The Governor pointed out that banks need to emerge from the pandemic healthy and that, the effects of the Russian invasion in Ukraine are not yet fully evident. “Therefore, banks need to closely monitor the most vulnerable sectors to timely address any deterioration of their clients’ financial situation and credit risk”.
He added that structural weaknesses of the banks need to be addressed via effective digitalisation strategies and enhanced governance in order to ensure the medium term sustainability of the industry and the transition towards a more socially responsible banking model.
He also said that emerging risks, such as climate and environmental risks and cyber risk, need to be tackled, measured and fully incorporated in the banks’ risk management frameworks, policies and procedures.
Herodotou noted that further deepening of EMU can help enhance further the resilience of the banking sector and address future shocks while boosting economic growth. The completion of the banking union, he said, will mark the establishment of a truly single European banking market in which cross border economic transactions will take place freely and will also act as a safeguard against possible fragmentation initiatives or actions.
The Governor said that under this extraordinarily uncertain economic environment, monetary policy turned into a challenging balancing act, aiming to reduce inflation without hurting too much economic growth recovery in 2023. However, he added, acting too little and too late could necessitate acting more aggressively which could impact future growth.
Source: Cyprus News Agency