Sanctions against Russia and Russian citizens "do not have a significant impact on the Cypriot economy so far”, Governor of Central Bank of Cyprus Constantinos Herodotou told journalists, after a meeting Friday with the President of the Republic, Nikos Christodoulides.

The Governor stressed that "our banks have very satisfactory capital levels and one of the best levels of liquidity in the EU".

Commenting on the proposal of the Cypriot Minister of Finance for banks to absorb part of the increase of the interest rates on mortgage loans up to 350,000 euros, the Governor of the Central Bank stressed that any decision by the banks must be consistent with European regulations, so that "it does not count as loan restructuring".

During the meeting with the President of the Republic, a series of issues were discussed such as non-performing loans, inflation, interest rates and Western sanctions against Russia.

In addition, the Governor of the Central Bank said that the banks may start raising deposit rates as from today, adding that "all forecasts show that by the end of 2023 we will see a significant reduction in inflation".

Sanctions against Russia

Invited to comment on the possibility of imposing new sanctions against Russia and if a new list of natural and legal persons was expected from London and Washington, Herodotou said that the Central Bank did not have any information, adding that, "as already announced, Cyprus banks immediately applied recent as well as previous sanctions".

The US Department of Treasury and the UK Foreign Office imposed last week sanctions on Cypriot individuals and legal entities in connection “with the Russian Federation’s unlawful and unprovoked invasion of Ukraine, including facilitators of sanctions evasion.”

Herodotou also said that the President of the Republic told him “That this is an opportunity for our country to show good will and to improve the name of Cyprus", noting that the Central Bank "as an independent authority has always acted to strengthen stability and ownership of the banking sector and the country".

Asked whether the expansion of sanctions against Russia would have an impact on the economy, Herodotou said that "sanctions so far, at the level of the country's economy, will not have a significant impact," adding that he could not predict the impact that potential future sanctions may have on the economy.

Asked if there would be capital outflows from closing accounts of Russian nationals, the Governor replied that such thing would not happen and that "our banks have very satisfactory levels of capital and one of the best levels of liquidity in the EU".

He also said that closing the accounts of some bank customers "does not affect the bank or any other customer of the bank at all" and noted that what’ s being done is that "some bank accounts, among the hundreds of thousands of bank accounts that our system has, are being frozen".

ECB interest rate hike

Asked if there was an intention for another interest rate increase by the ECB at its early May meeting, Herodotou asked for a wait-and-see stance until the latest data on the Eurozone economies for March and April were announced, on the basis of which it will be decided whether a new interest rate increase was needed and how much it would be.

"All forecasts show that by the end of 2023 we will see a significant reduction in inflation and this is because interest rate changes take around 16 to 18 months to have an effect on the economy," he noted.

"When inflation goes down, interest rates will go down, " said Governor who is also member of ECB Governing Council.