Inflation is “undesirably high”, President of the European Central Bank, Christine Lagarde, said on Tuesday, noting that the goal was to bring it down to 2%. In Cyprus inflation is 9% which is slightly lower than the eurozone average, she said.
Lagarde, who is in Cyprus on the invitation of the Governor of Cyprus’ Central Bank, Constantinos Herodotou, participated in an open dialogue with university students, along with Herodotou.
Replying to questions about the inflation, she said that, at the moment, it was “undesirably high”. Lagarde said that, for many years the target has been defined as “close to but below 2%”, but that they decided with the 19 members of the ECB Governing Council around a year ago, that it will be 2% in the medium term.
She said up until December 2020 inflation was negative and that since March 2020 when COVID hit, they have been doing anything they can to prevent a financial meltdown.
The ECB President said that it was difficult to say if inflation was at its peak and it was most important to understand what is fueling inflation to find the right remedy. In Cyprus, she said, it is 9% which is a little below the Euro area and that they want to bring it to 2% in the medium term.
She said the causes of inflation were the war in Ukraine, that has accelerated the pace by making energy prices “much higher than anything we have seen before,” creating shortages, and the supply bottlenecks.
To tackle the problems, she said, demand must not be stimulated even more, so, they started working since December 2021, on gradually stopping the stimulation of demand by deciding to stop purchasing assets. She said they stopped two asset purchasing programmes and, started hiking rates. “That is what a central bank has to do, we have to bring inflation back to target, if we let inflation run loose, to bring it back, you have to fight really hard. We have to bring price stability back,” she said.
Herodotou noted that, in order for monetary policy to take effect, it takes time, usually 16 to 18 months, and that is why the results of measures taken may not be visible immediately, but in the medium term.
On inflation in Cyprus and that it is slightly below the Eurozone, Herodotou said Cyprus is a small open economy which is easily affected by international developments but at the same time, because of its size, it is very flexible in terms of how quickly it can adjust several parameters to deal with this. For example, he said, even though it was expected that tourism would have a big impact on Cyprus’ economy, competent authorities mobilised early this year and managed to mitigate the disruption from tourism. “Another thing we have in our favour – not by strategy but it is the nature of things – we don’t have dependency on gas prices, our entire dependency is on oil. The increase in gas prices has been much bigger whereas oil was also impacted but its price came substantially down afterwards,” he said.
Replying to questions about cryptocurrencies and Central Bank Digital Currencies, Lagarde said that crypto assets are highly speculative assets which do not satisfy the criteria for currency whereas stable coins are means of payments that are more stable and less volatile.
She said they were discussing whether to introduce a digital currency (euro), which she said, will be like the bank note people carry around, and that decisions on this are to be taken next year.
On opportunities for the new generation, and how women could gain access to leadership positions, she spoke about her own personal experience and said she started from the bottom and failed many times in her life.
She said however, that, when she was a young graduate, she was determined not to let others decide for her, and said it was “fantastic” that many students stood up when she asked who would like to become a leader in the future.
Lagarde also said that, to become a leader in the corporate world, it takes hard work, and one needs to be humble, have confidence in themselves and others, and it also depends on the risks they are determined to take. She also urged students to grab opportunities “by the hair”.
Source: Cyprus News Agency