central bank sees shallower 2014 recession than forecast
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[June 25, 2014]
By Michele Kambas
NICOSIA (Reuters) -
Cyprus's economy could contract less this year than the
4.2 percent expected by the euro zone country's bailout
lenders, its central bank governor said on Wednesday.
The European Union and International Monetary Fund, which will lend
Cyprus 10 billion euros under a year-old rescue deal, revised the
projected drop in output lower last month from an earlier estimate
of 4.8 percent.
At a news conference, central bank governor Chrystalla Georghadji
cited data showing an annual decline in first quarter output of 4.1
percent compared to 5 percent for the quarter before. "Based on that
assessment, the troika's projection for a 4.2 percent decline in
growth for the full year is rather pessimistic," she said.
"We would expect it to be around 4.0 percent."
Since its March 2013 rescue, under which the island nation was
forced to shut down a loss-making bank and impose losses on
depositors in another lender, Cyprus's economy has proved more
resilient than many had expected.
Last week, it made the swiftest return to financial markets of any
bailed-out country, selling a 750 million euro five-year bond
yielding 4.8 percent.
Georghadji, who also represents Cyprus on the governing council of
the European Central Bank, said the island would fully dismantle
capital controls imposed at the time of the bailout when confidence
in the banking sector was restored.
Domestic controls were fully dismantled in May, but controls still
exist in transactions with the outside world.
Efforts to shore up the financial industry, wrecked by its exposure
to Greek debt and by the rescue plan, were beginning to yield
results, she told the news conference in Nicosia.
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Georghadji later said commercial banks were wise to try to raise
capital ahead of euro zone-wide stress tests later this year for
which they should be "absolutely prepared". "A capital issue would
be a prudent move for them to move towards the stress tests
reinforced," she told journalists, adding that better buffers
against future losses for commercial banks could also help hasten
the removal of capital controls. Bank of Cyprus, which recapitalised
last year by turning a percentage of deposits at the bank into
equity, said on Tuesday its board would discuss capital issues and
funding at a meeting on June 26.
(Editing by Catherine Evans)
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