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Central Bank Governor: Our resources must be managed thinking more medium- term

30/04/2020 08:59

Cyprus’ Central Bank Governor Constantinos Herodotou has cautioned that in managing the resources the country’s economy has at its disposal planning should be more medium-term, noting that the crisis caused by the COVID-19 pandemic may well have consequences up until the first or second quarter of 2021.

Herodotou, who was addressing the Cyprus Economic Summit Covid-19, which took place online and was hosted by IMH, assured that the Central Bank of Cyprus will monitor the situation and will make any adjustments necessary. “We are vigilant, we are preparing our own scenarios in order to help in any way we can,” he stressed.

The Central Bank Governor outlined all the measures taken so far by the institution in cooperation with all relevant local and European authorities, pointing out that from the outset the goal was clear: “To support the country’s financial stability and safeguard as much as possible businesses and households, that is to say the real economy.”

At the same time, he said, we must always keep in mind that our country needs to have a healthy banking sector.

“Our economy’s growth depends almost entirely on the banking system and the banking system depends almost entirely on the economy,” he added.

Certainly, he continued, we need to take steps and the steps we have already taken aim to ease the great cost on our economy from the pandemic and in all economies throughout the world.

He pointed out, however, that “in taking those measures, we must not forget the next day.”

According to Herodotou, “we must be careful that any measures we take today, will not become the reason for any other future crisis.”  Therefore, he added, “there is a need to be prudent and for provisions to be made so that we can manage properly the sources we have at our disposal today.”

In order to do that, he said, we need to take into account how the economy’s recovery is likely to take place.

Referring to the so called “tick shaped” recovery, he said that measures and consequences to do with the current situation will certainly be present even in 2021. And it is logical, he added, that some measures may be in place until a vaccine is found.

Therefore, he said, “we need to think that there will also be financial consequences until that time.”

We know that due to the crisis of 2013 we have certain limitations fiscally and in our banking system, he noted, adding that while banks are lucky to have great liquidity, they still have non-performing loans in their books from 2013.

He expressed the view that fiscal strength must be maintained until the beginning of 2021, adding that it must be focused on the measures which will be more effective for the economy and making the best possible use of public funds while at the same time ensuring that measures taken today will keep the banking sector healthy and robust so that banks can help businesses and households recover after the crisis.

"We must think more medium-term," he noted, adding that the resources available today must be managed with an outlook until the first or second quarter of 2021, under a basic recovery scenario. Under an unfavourable scenario consequences may continue until 2022, he said.

Therefore, he pointed out, “prudence, moderation, planning” are needed.