The Governor of the Central Bank of Cyprus, Constantinos Herodotou, stated that the Cypriot economy will grow at a higher rate than the Eurozone average in 2023. He added that both the national economy and the Cypriot banking sector have shown significant resilience to external shocks, such as the pandemic, the energy crisis and the ongoing war in Ukraine.

Speaking at the 13th Economic Congress which was held in Nicosia, the Governor noted that key interest rates are expected to return to the neutral rate around the second half or the end of 2024, as long as inflation falls to the ECB's target of 2%. He clarified that neutral interest rates will be lower than their current level but will not resemble the zero levels that applied before.

Referring to the Cypriot economy, the Governor pointed out that based on the March macroeconomic forecast of the Central Bank of Cyprus, the rate of the economic growth is expected to slow down to 2.6% in 2023. Mr. Herodotou said that this growth rate compares favorably with the Eurozone average, which is forecast at 1%. He added that the slowdown in Cyprus' GDP is expected to be the result of reduced loan demand due to higher interest rates and reduced private consumption and investment.

Regarding inflation, the Governor explained that following the 8.1% rate in 2022, it is predicted to decrease significantly to 3.3% in 2023, while further easing of inflationary burdens in 2024 and 2025 will drop inflation rates to 2.3% and 1.9%, respectively. This, he said, will be mainly due to the normalization of energy and food prices, as well as the expected impact on demand due to rising interest rates, as a result of the European Central Bank monetary policy.

However, the Governor warned that high inflation combined with rising interest rates may reduce the net income of households and consequently limit the repayment capacity of borrowers. Therefore, he stressed that banks should continue to be careful in approving new loans in order to ensure the borrower's ability to repay them. He reiterated the need for banks to adopt faster restructuring procedures, with reduced fees or additional costs, prioritizing potentially vulnerable customers.

The Governor highlighted the surplus in liquidity and the capital adequacy of the Cypriot banking system, which are both at solid levels. He added that the liquidity coverage ratio reached 310% in December 2022, almost twice than the EU average. "These percentages indicate the strengthened resilience of Cypriot banks," he stressed.

Regarding non-performing loans, the Central Bank Governor claimed that in the overall banking sector, there is a significant reduction from 44% in 2017 to 9.5% at the end of 2022, a percentage which is still higher than the EU average (1.8%).

Meanwhile, the Chairman of the Cyprus Economy and Competitiveness Council, Takis Klerides, referred to the Council's long-term strategy, noting that the described reforms and changes will make the Cypriot economy more competitive and resilient. As for the other focus areas of the Council, Mr. Klerides highlighted that additional reports are being prepared in order for recommendations to be made on issues related to the pension system and the low birth rates, “a complex problem that has been affecting Europe and Cyprus in recent years.”