Constantinos Herodotou: Current economic developments in euro area and Cyprus - the balancing act of monetary policy Speech by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at the Distinguished Speakers Seminar of the European Economics & Financial Centre (EEFC), London, 19 October 2022. ***  Introduction Dear guests, ladies and gentlemen. Thank you for inviting me to this seminar. It is a pleasure to have this opportunity to speak to you today. I will begin by providing an overall assessment of recent economic developments in the euro area, as well as the monetary policy decisions taken by the Governing Council of the European Central Bank in response to the new challenges of persistently high inflation and rising economic uncertainty. I will continue with the developments in the Cyprus economy and its banking sector, and how it responds to the challenges in this rapidly changing economic environment. Euro area economic developments In the euro area, GDP is growing at a slower pace this year than previously expected due to the negative geopolitical developments, caused by the war in Ukraine. Growth is hampered by soaring energy and commodity costs, low confidence and supply chain disruptions. At the same time, inflation has approached double digits, and a winter with possible energy shortages and high energy prices is on the horizon. Nevertheless, a recovering tourism industry, decreasing unemployment, and EU funding payments helped to boost activity and limit, to some extent, output loss.
On the supervisory front, we need to address the cross-border as well as growing cross-sector integration in our financial systems. Finally, sound fiscal policies also play a significant role in maintaining financial stability. I am glad that this conference provides a good opportunity to discuss these policy challenges and their implications in more depth. Thank you for your attention. BIS Review 8/2004  3