The recent developments following the war will push inflation higher in 2022, with negative consequences on the purchasing power of households and investment decisions of firms. We have, for this reason, begun adjusting monetary policy accordingly. When the necessary conditions, as set out during our recent monetary policy strategy review, are satisfied, we can take additional steps towards policy normalisation, always taking into account the high uncertainty and the underlying risks caused by the war. Hence preserving flexibility is of paramount importance. A fundamental difference of the current crisis with the one faced a decade ago is that the Cyprus banking system is not part of the problem now but it can and must be part of the solution. The Cyprus banking sector has the buffers to absorb unexpected shocks, both from a solvency and a liquidity perspective. The core regulatory ratios of Cyprus Banks compare well with our European peers, providing our banks with the capability to  2/3  BIS - Central bankers' speeches  absorb losses and to fund the real economy through lines of credit to both viable businesses and households and be accommodative for the transmission of monetary policy. In this ever changing global terrain, we shall be neither optimistic nor pessimistic. Instead, we shall act; and we shall act in a responsible manner with realism and honesty. The citizens of Europe need to be aware of the challenges and difficulties. A well-informed citizen acts more responsibly. And that's the best answer to any challenge.
We, here in Cyprus, know what a challenge is and how to overcome it. A country at the edge of the Mediterranean sea, has managed to place itself to the political and economic core of the European continent. A small island with a part of it under occupation, thrives thanks to its extroversion and its people, who despite having been put to the test so many times in the past, have never stopped creating, evolving and moving forward. I have no doubt that together with our European partners we will take all the necessary actions to overcome this challenge as well, guided by our common core values and principles. As the great French novelist Victor Hugo said, "Changez vos opinions, gardez vos principes; changez vos feuilles, gardez intactes vos raciness" "Change your opinions, keep to your principles; change your leaves, keep intact your roots". Here in Cyprus we often say that "a captain is proven capable when she is in a storm". And hence, I consider ourselves lucky since our ECB captain steering us through both the Covid and geopolitical storms is Christine Lagarde, a leader of undoubted capacity and experience, whom I thank again for being with us today and would like to invite her to the podium to share her thoughts with us. 3/3  BIS - Central bankers' speeches