By Stelios Orphanides
Finance minister Harris Georgiades said that European institutions were late to react to lower demand in the euro area, as the European Central Bank reduced rates further in an attempt to curb the risk of deflation and the European Commission earmarked €300 billion to boost investment together with the European Investment Bank.
“I think we are getting to a kind of a consensus, maybe with a delay, because this could have happened sooner,” Georgiades said today while speaking at a conference in Limassol. “I would agree that such action can complement the difficult structural reform and consolidation, not supplement the difficult work that needs to be done”.
On September 4, the ECB lowered its rate on main refinancing operations to 0.05 per cent and rate on the deposit facility to -0.20 per cent, citing low inflation undermining growth in the euro area.
On Wednesday, European Commission chairman Jean-Claude Juncker unveiled plans to set up the European Fund of Strategic Investment in an attempt to kick-start growth by leveraging more than €300 million of largely private investment.
Georgiades said that Cyprus has to maintain an inflation rate below the euro area average.
“But on the other hand we must avoid the danger of deflation,” he said. “And here is where the ECB could do its bid by keeping the eurozone inflation not above, but very near the 2.0 per cent threshold”.
In October, Cyprus posted a harmonised annual inflation rate of 0.3 per cent compared to 0.5 per cent a year before. Respective euro area figures were a provisional 0.4 per cent and 0.7 per cent, according to Eurostat.