For its part, the Banco de España, in keeping with its remit, considers that this review must not succumb to the temptation of indiscriminately stepping up the level of regulation of the sector. The initiatives along these lines have to be thought out in depth and have to be justified by the existence of a market failure the resolution of which, through public intervention, gives rise to greater benefits than costs. Lastly, in regard to the direct powers of the Banco de España, I would remind you of something that often seems to be overlooked: the institution I represent is part of the Eurosystem. In view of that fact it will continue working to ensure that monetary policy implementation is compatible with holding inflation within the bounds set by the central bank and, at the same time, will help guarantee that adequate liquidity is provided so that money markets function properly. The social partners also have an important task: to co-operate so that, while the inevitable adjustment is taking place in the residential construction sector and in related activities, the rest of the economy, i.e. industry and services, becomes more dynamic. And for this to happen a moderation in private sector margins and in unit labour costs through wage moderation and/or productivity increases is fundamental. It should be quite clear for all that if the inevitable rise in unemployment in construction is not offset by greater dynamism in the rest of the private sector of the economy, employment may perform more negatively than expected.
More specifically, the energy component is the largest contributor to the surging trend of domestic headline inflation (with around 45% share of HICP). We expect that our domestic short-term inflation outlook will continue to remain, overall, at very elevated levels, similar to the euro area inflation developments, amid the ongoing significant uncertainty and volatility resulting from the war. More specifically, Cyprus HICP inflation for 2022 has been revised upwards in our most recent projections, now reaching 8,4 percent compared with 7,0 percent in the CBC June 2022 projections. Banking sector n this ever changing and uncertain economic environment, the Cyprus Banking Sector is proving resilient, exhibiting a solid and healthy financial standing. The solvency position, as measured by the Common Equity Tier 1 ratio was edging up to 17,5 percent in the second quarter of 2022, a level higher than the respective European average of 15,2 percent. The Liquidity Coverage Ratio, indicating the availability of liquid funds against deposit outflows over a 30 day stressed period, stood at the level of 320 percent in July 2022 which is more than 3 times higher than the minimum requirement of 100 percent, placing Cyprus amongst the most liquid banking sectors in the Union, where the average LCR amounts to 168 percent.