Nicosia, Cyprus. Central Bank of Cyprus governor Christodoulos Patsalides said inflation risks are gradually increasing due to persistently high energy prices, although there is no evidence supporting an immediate increase in interest rates.
ECB rate decision
In an interview with financial news service Econostream, Patsalides said the European Central Bank’s decision last week to keep interest rates unchanged was appropriate.
He said inflation remained broadly in line with expectations, second-round effects had not emerged and inflation expectations were anchored.
“There was no evidence that would have supported a rate hike,” Patsalides said.
Energy market risks
Patsalides said risks remained tilted upwards because of developments in energy markets. He said prolonged geopolitical tensions could result in higher oil prices spreading through the economy and contributing to broader inflation.
“As more time passes without a resolution of the situation, and prices remain elevated, being pre-emptive gains in importance,” he said.
He said policymakers must balance incoming evidence with the need to act before inflation becomes entrenched.
Economic indicators
Patsalides said monetary policy decisions should be based on a comprehensive assessment rather than a single indicator.
“One has to look at the whole set of data before assessing and deciding,” he said.
The governor said he was monitoring whether higher oil prices were affecting production costs, consumer prices, inflation expectations and wages. He said there was no evidence of broad cost-push inflation outside energy and that wage demands remained contained.
Fiscal pressures
Patsalides also said higher government deficits and increased defence spending across Europe could eventually create inflationary pressures, despite limited fiscal space.