constantinos herodotou : a resilient banking sector in an everchanging economic environment speech by mr constantinos herodotou, governor of the central bank of cyprus, at the deloitte annual conference, nicosia, 28 september 2022. * * * introduction distinguished co - speakers and guests, ladies and gentlemen. thank you for inviting me to this conference. it is a pleasure to have this opportunity to speak to you today. i will start with a brief overview of recent euro area and cyprus economic developments and the monetary policy decisions taken in response to the new challenges of persistently high inflation and elevated economic uncertainty. i will continue with the developments in the cyprus banking sector which needs to address a number of challenges in this fast evolving economic environment. euro area euro area economic developments in the euro area in general, gdp is growing at a slower pace this year than previously expected due to the negative geopolitical developments, mainly caused by the war in ukraine. growth is hampered by soaring energy and commodity costs, low confidence and supply chain disruptions. at the same time, inflation is approaching double digits, and a winter with possible energy shortages and high energy prices is on the horizon. nevertheless, a recovering tourism industry, decreasing unemployment, and eu funding payments help to boost activity and limit, to some extent, output loss. more specifically, the euro area quarterly economic growth reached 0. 8 percent in the second quarter, following a 0. 7 percent rise in the first quarter. the biggest impact from war developments is expected to be shown in the data of the fourth quarter of 2022 and the first half of 2023. this outlook is reflected in the latest ecb projections for economic growth, which have been revised down markedly for the remainder of the current year and for 2023. the euro area economy is now expected to grow by 3. 1 percent in 2022, 0. 9 percent in 2023 and 1. 9 percent in 2024, compared to the december 2021 projections of 4, 2 percent, 2, 9 percent and 1, 6 percent respectively. harmonized inflation rose to a high of 9. 1 percent in august, up from 8. 9 percent in july, indicating a continuing rising trend. for the period january - august as a whole, inflation stood at 7, 6 percent. compared with the june 2022 eurosystem staff broad macroeconomic projection exercise, headline inflation has been substantially revised up in september by 1, 3 percentage points to 8, 1

level, it means that inflation is expected to be at 3. 3 % in the fourth quarter of 2023, assuming, of course, there are no new external shocks. the aim of monetary policy, through higher interest rates, is to support disinflationary pressures through downward pressure on demand. so monetary policy has a " more " difficult job than when dealing only with " typical " demand driven inflation. 1 / 2 bis - central bankers'speeches given the above considerations and the current highly uncertain environment, the inherent flexibility of the meeting by meeting approach we decided at the governing council is well suited to calibrating monetary policy, in line with the incoming data and the evolving outlook. thank you. 2 / 2 bis - central bankers'speeches