Central Bank of Cyprus weighs systemic risk buffer as inflation reaches 5.2%

Central Bank of Cyprus Governor Christodoulos Patsalides told the Parliamentary Committee on Finance and Budget, during its consideration of the 2027 state budget, that the central bank is considering activating a systemic risk buffer and will announce its decision in early November. He also called for sound public finances and targeted investment to contain domestic demand and strengthen productivity as inflation remains elevated despite strong economic growth. The central bank projects gross domestic product growth of around 3% annually and inflation of 3.3% for 2026. Inflation reached 5.2% in September, driven mainly by energy and services, while the government recorded a surplus of 4.1% of GDP in the first eight months and public debt fell to about 50% of GDP. Patsalides urged the government to contain inflexible spending and direct fiscal resources toward infrastructure, technology and reforms. Cypriot banks have record capital levels, liquidity above regulatory requirements and nonperforming loans below the European average, but geopolitical, climate, cyber and concentration risks remain central to macroprudential supervision. The existing 1.5% countercyclical buffer on domestic exposures represents EUR 230 million in capital requirements, alongside an additional EUR 440 million buffer linked to institutions’ systemic importance. Patsalides also highlighted preparations for digital euro pilots in 2027 and a proposed governance reform that would establish a collective executive body for the central bank, with draft legislation expected to undergo legal review.