The ECB's easing of monetary easing, as a first response of the eurozone to persistent inflationary pressures, will also have an impact on the real economy of Cyprus. The ECB's monetary policy had a positive effect on the Republic's borrowing costs and helped to recover from the shock of the pandemic. It is characteristic that the value of money circulating in physical form in the Cypriot economy increased by 20%.
The data from the balance sheet of the Central Bank of Cyprus and the data on the level of household and business deposits show that the policies for dealing with the pandemic have filled the Cypriot market with cash. The balance sheet of the Central Bank of Cyprus at the end of January 2022 jumped to 33.123 billion euros, from 21.947 billion euros in January 2021 and 19.435 billion euros in January 2020.
The balance sheet of the Central Bank increased by 70.43% within two years. This increase is due exclusively to the implementation of the quantitative easing, with the Central Bank proceeding with bond purchases and lending to banks.
The balance of receivables within the Eurosystem amounted to 15.685 billion euros in January 2022 from 11.852 billion euros in January 2020 (+ 32.34%), the value of euro area residents' debt securities amounted to 9.029 billion euros from 6.095 billion euros. billion (+ 48.13%) and loans to credit institutions related to monetary policy operations amounted to 6.513 billion euros in January from just 9.3 million euros in 2020.
The Cypriot bonds
Total purchases of Cypriot bonds by the European Central Bank (ECB) under the Public Assets Purchasing Program (PSPP) and the Extraordinary Pandemic Asset Purchasing Program (PEPP), with the latter ending net asset purchases in , amounted to 6.973 billion euros at the end of March and corresponded to 27% of the issued debt of the Republic of Cyprus (KYPE). 90% of the purchases were made by the Central Bank of Cyprus.
The banks
The two systemic banks of Cyprus (Bank of Cyprus and Hellenic Bank) have made use of the possibility of lending through monetary policy operations. Although they have excess liquidity they drew even cheaper liquidity to improve their profitability.
At the end of 2021, Bank of Cyprus had financing of 2.970 billion euros from Central Banks (from 995 million euros as of December 31, 2020) and Hellenic Bank of 2.3 billion euros (from zero debts at the end of 2020). In total, the two banks borrowed € 5.27 billion through targeted long-term refinancing operations.
More money
Data from the Central Bank's balance sheet show In January 2020, the value of banknotes in circulation amounted to 2.528 billion euros and in January 2021 to 3.048 billion euros, an increase of 20.56%.
Although the increases in recent months have been attributed to rising energy prices and supply chain disruption, with the supply of energy and goods not being able to meet the increased demand since the economies opened in 2021, money supply is a key component. in pricing. If there is a quantity of money that can cover the increased prices then the inflationary pressures are maintained. This is the reason why the Central Banks are reversing their quantitative easing policies and raising interest rates. They reduce the money supply so that there is less money to cover the high prices with the supply being adjusted by reducing the prices.
However, the pressure exerted on households by rising energy prices makes it difficult to formulate an anti-inflationary policy with governments taking preemptive measures to support their most vulnerable citizens who are most affected by rising prices.
On the other hand, the end of inflationary pressures is not visible due to the uncertainty caused by the war in Ukraine. The rating agency Moodys estimates that inflation will rise to high levels in most parts of the world during 2022, due to disruptions in the supply chain and rising prices for food and energy.
The international rating agency predicts a partial easing of inflationary pressures in the second half of 2023.
