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--Gradual Pickup in Inflation Still 'Largely Dependent' on ECB, Cyprus Central
Bank Governor Says 
By Jack Duffy
     PARIS (MNI) - European Central Bank efforts to raise inflation are starting
to bear fruit but price increases are still "largely dependent" on the ECB's
monetary policy stance, Governing Council member Chrystalla Georghadji told
Market News International.
     Responding exclusively to written questions submitted by MNI, Georghadji
said "the ECB's policies to raise inflation are gradually working. However, it
is clearly too soon to declare complete success." 
     Georghadji, who heads the Central Bank of Cyprus, said the pickup in
Eurozone inflation "is still largely dependent on the ECB's accommodative
monetary policy stance. Only a sustained adjustment in the path of inflation
would warrant the gradual withdrawal of our exceptional degree of monetary
policy accommodation."
     Eurozone headline inflation was a weaker-than-expected 1.5% in September,
Eurostat said Friday, and ECB staff warned in the bank's recent Economic
Bulletin that inflation could retreat as low as 0.9% in the first quarter of
next year due to energy and food prices. 
     In her written responses, Georghadji did not comment on steps the Governing
Council may take at its Oct. 26 meeting to scale back its quantitative easing
program. Most analysts expect the central bank to cut its monthly bond purchases
from E60 billion a month to E40 billion.
     The Cyprus central banker suggested, however, that the roughly 12% rise for
the euro against the dollar this year was not a major concern for the Governing
Council as it formulated its future plans.
     "As the appreciation of the euro mainly reflects the stronger economic
fundamentals of the euro area, it is less of a concern for the ECB," she said. 
     She said any differences on the Governing Council were related to the
"timing of any monetary policy changes" rather than to the overall commitment to
continue a supportive policy until inflation moved in a sustained way toward the
ECB's target.
     Regarding Cyprus, Georghadji said that nearly two years after the country
exited its E10 billion bailout, the economy was performing well, with growth of
more than  3.7% expected this year and unemployment projected to be below 7% by
the end of 2019 after a peak of 16% in 2014. 
     But Cyprus banks still remain "fragile," she said, weighed down by a heavy
burden of non-performing loans that is declining more slowly than expected. 
     "The banking sector remains fragile and the main reason for this is the
persistent high level of NPLs," Georghadji said. "The CBC is now in the process
of analysing the reasons behind this in order to revise and redesign the targets
set for the banks," she added. 
--MNI Paris Bureau; tel: +33 1-42-71-55-41; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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