Cyprus a familiar economic space for Greece

In an interview conducted by Kathimerini Cyprus’ Panayiotis Rougalas, Bank of Greece Governor Yannis Stournaras shed light on various aspects of the Cypriot monetary policy and economic landscape.

Stournaras emphasized the effectiveness of recent interest rate hikes by the European Central Bank in curbing inflation without significant repercussions on the real economy and financial stability. The unprecedented speed and intensity of these hikes, initiated since July 2022, led to visible impacts on corporate and household lending rates, resulting in reduced loan demand and slowed credit expansion. Despite the slowing of economic activity, the BoG governor noted that Greece and Cyprus have experienced higher GDP growth rates compared to many other eurozone countries.

Addressing the possibility of lowering interest rates, Stournaras indicated the need for confidence in inflation converging steadily toward the medium-term target of 2%. He pointed to positive signs of inflation slowing down and the potential for a rate reduction in the second quarter of the year.

On the subject of interest rates returning to pre-pandemic levels, Stournaras expressed skepticism, citing the importance of the natural rate of interest and its evolution. He suggested that considering various factors like productivity growth, population aging, and geopolitical disturbances, the natural rate in the “new normal” is unlikely to return to pre-pandemic lows.

Regarding asset quality, Stournaras noted the dramatic improvement in Greek banks’ nonperforming loans (NPLs) and expected a mitigated impact on bank portfolios in the face of economic growth and the ECB’s gradual reduction of key interest rates. He also highlighted the need for banks to manage climate risks and support the transition to sustainable development.

Cyprus a familiar economic space for Greece https://t.co/HpY6b3msGk pic.twitter.com/kRAxaUG3B0

— Kathimerini English Edition (@ekathimerini) March 12, 2024