Herodotou: Bank system stable with strong cash flow

Central Bank of Cyprus (CBC) Governor Constantinos Herodotou told a panel discussion that Cyprus’ banking system was now stable with one of the highest liquidity levels in the EU, and was not under any particular threat.

He was analysing the main challenges faced by Eurozone monetary policymakers during a discussion at the 8th Delphi Economic Forum, which was also joined by Luis de Guindos, Vice-President of the European Central Bank (ECB)

Responding to a question, Herodotou said the local banking system had now entered an era of stability and was not under any particular threats. “When it comes to Cyprus’ banking sector, we have one of the highest liquidities in the EU,” he added.

Herodotou referred to wage increases, the de-globalisation trend affecting payment chains and increasing inflationary pressures, as well as the turmoil in the US market which he said is also affecting the European market.

He said recent financial-market tensions “may have an additional impact on financing conditions, in addition to our monetary policy, so we need to gauge that and see how it could potentially complement or at least how it contributes to the monetary-policy stance”, adding that other factors, including rising wages and trade frictions as a result of geopolitics, may contribute to price pressures, so the challenges faced by the ECB “may act in opposite ways”.

Herodotou said that the memories of previous financial crises created tensions in the banking market, as well as volatility in the general market. He said there were tools that could be used in these cases, but added that it was too early to see what the markets think.

The “opening” of China’s market may resolve certain issues, said the CBC Governor, however, it could also affect inflation.

Referring to the interest rate hikes, Herodotou said it takes around 16-18 months for them to start affecting the economy. “Structural inflation persists and we must work on it," he said.

(Source: InBusinessNews)