MNI EXCLUSIVE I'VIEW: ECB Georghadji: Cant Declare Success Yet

--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: jack.duffy@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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