CENTRAL Bank Governor Athanasios Orphanides warned again yesterday that fiscal restraint was needed as long as the economy continued to face inflationary pressures.
“The prospects are relatively good, but at this point our only great concern is the inflationary trends existing in the Cypriot economy as well as in the euro area,” Orphanides said after his first meeting with the new President Demetris Christofias.
According to Finance Ministry forecasts, inflation for 2008 is expected to reach between 2.5 per cent and 2.75 per cent, compared to 2.4 per cent last year.
“Inflationary pressures are even higher due to the increase in the price of oil,” said Orphanides, adding that in light of this, the need to curb prices was even more acute.
And he warned of overheating in the economy.
“We must be careful not to give salary increases that exceed the productivity level in Cyprus. When oil prices increase, productivity falls,” the Governor said.
He said he was issuing the warning on fiscal restraint on wages, because Cyprus was in a period where collective agreements were coming up for renewal.
Christofias said later yesterday that Orphanides was an independent official within the European legal framework and that the country’s leadership would listen carefully to what he had to say.
But he added: “The decision with regard to the economic policy of the state and in particular its social policy, will be taken by the government.”
Christofias during the election campaign described as “regrettable” Orphanides’ call to abolish the six-monthly index-linked Cost of Living Allowance.
The Central Bank Governor is to attend a European Central Bank general council meeting in Frankfurt tomorrow to review monetary policy decisions. He said Europe did not expect a recession in the wake of the financial crisis hitting the US economy. “But we do expect a deceleration of the economy compared to the rate of growth last year,” Orphanides said.
Cyprus’ growth reached 4.3 per cent last year and is expected to hover around four per cent this year.
Asked to comment on the week-long slide on the Cyprus Stock Exchange (CSE), and particularly on banking stocks, Orphanides said the Central Bank was closely watching the situation.
The market recovered slightly yesterday after five days of losses last week, and a significant 6.32 per cent drop on Monday, led by further pressure on Bank of Cyprus (BoC) shares.
BoC losses last week dragged down both the CSE and the Athens bourse after analysts expressed disappointment with the bank’s future growth plans, calling them “weak”.
On Monday, BoC shaved another €0.66 from its share price, bringing it down to €7.42.
Yesterday, it recovered €0.12 to close at €7.54 as over €3 million BoC stocks changed hands.
The general index closed 1.2 per cent up yesterday with a total volume traded of €7.9 million.
