Central Bank of Cyprus Governor, Christodoulos Patsalides, has commented on the Governing Council of the European Central Bank (ECB) decision to increase the key interest rates by 0.25%.
In an official statement, Patsalides said, "As the initial scenario analysis at the outset of the crisis in the Middle East indicated, a prolonged conflict would intensify inflationary pressures, shifting upwards the baseline inflation outlook. Six months into the conflict, this assessment is now confirmed by the latest data."
He continued that, "The inflation outlook continues to be shaped to a large extent by the energy shock. Moreover, upward revisions to our economic growth projections reinforce a higher baseline trajectory for inflation.
The updated September baseline scenario points to a prolonged period of elevated inflation. This occurs despite the tightening of financial conditions, which stems from the increase in key interest rates in June and the rise in long-term bond yields. After assessing the latest data and the alternative scenarios (baseline, mild, adverse and severe), we concluded that a 0,25% increase in the key interest rates was warranted."
Patsalides said, "I would like to note that there are no material signs of second-round inflationary pressures, as demonstrated by the latest indicators regarding wage trends. At the same time, inflation expectations, as reflected in international financial markets and survey-based indicators, remain under control. As a result, the ECB remains well positioned to manage the current uncertainty and is determined to ensure that inflation stabilises at our 2% target in the medium term."
The Cypriot picture
On the situation in Cyprus, Patsalides said, "The Cypriot economy continues to demonstrate resilience despite heightened geopolitical uncertainty, supported mainly by the momentum of the services sector, strong private consumption, robust labour market and sound public finances.
Against this backdrop, inflationary pressures have intensified in recent months, with inflation rising to 5.2% in August 2026, from 4.4% in July. This increase is mainly due to the prices of services and energy, with services remaining the largest component of inflation. These developments reflect strong demand conditions, both domestically and through the tourism sector, as well as the pass-through of higher energy costs to electricity and transportation prices.
After 2026, inflation is expected to gradually moderate as external price pressures fade. However, the risks to the inflation outlook remain tilted to the upside."
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