Constantinos Herodotou: Central Bank Challenges in a world of growing uncertainties - the conduct of monetary policy and the evolution of traditional banking Speech by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at the ICPAC Mediterranean Finance Summit, Limassol, 5 May 2022. *** Dear guests, dear co-speakers, it is a pleasure to have the opportunity to speak to you here today. These days our thoughts are with those affected by the tragic events of the Russian invasion in Ukraine. Beyond the human loss, Russia's war against Ukraine has disrupted further the global supply chains and in effect growth and inflation patterns around the world and the euro area economy. Europe faces both supply disruptions and surging prices for commodities and raw materials, problems exacerbated by the region's dependency on Russian oil and gas. How the euro area economy performs will greatly depend on the magnitude and time length of the conflict, the side effects of current sanctions on the euro area and on possible further measures. I will first describe the current economic developments in the euro area as regards growth and inflation outlook and the ECB's monetary policy stance and challenges under the prevailing uncertain geopolitical situation. As the supply disruptions from the acute phase of the pandemic were easing, the war and the consequent sanctions imposed on Russia are causing a new negative shock that is weakening the pace of the post pandemic recovery, creating new supply-side bottlenecks and increasing inflationary pressures for longer.

Given the immense funding requirements that ASEAN has, particularly for large investment projects and infrastructure development, greater financial integration will facilitate channeling part of the region’s surplus funds towards productive investment opportunities in the region. Regional financial integration will also allow for more efficient risk diversification of assets to include foreign assets from within the region. This will not only reduce vulnerability to external developments but will contribute to achieving more stable conditions in the regional financial markets. Additionally, this trend has been reinforced by greater coordination and cooperation among the regional Central Banks and regulatory authorities to safeguard financial stability. The collective actions that have been taken have enhanced the ability to manage and respond to risks confronting the region. Greater financial integration has also created an enabling environment for businesses. It has facilitated improved access to financing investments in the region. In particular, the presence of larger and increasingly more viable financial institutions in the region along with more developed financial markets have generated greater cross-border funding possibilities in the region and has allowed for more funding options for businesses. Further work in this direction is underway and significant progress on this front is expected to occur in this next decade. Key distinguishing features of ASEAN’s model of integration While ASEAN may draw on the experience from the European model of monetary and financial integration, the region has charted its own path towards greater financial integration.