The Central Bank of Cyprus has once again revised down its projections for the economy’s contraction this year to 4.0%, slightly milder from the 4.2% estimated by the Troika of international lenders earlier this month, itself down from initial indications of a -4.8% growth.
This confirms projections by Sapienta Economics earlier this month that the Cyprus economy, one year after its painful €10 bln bailout featuring a haircut on uninsured deposits and stringent capital restrictions, will shrink by a less-than-expected 3.1% in 2014.
Central Bank Governor Chrystalla Georghadji cited data showing an annual decline in first quarter output of 4.1% compared to 5% for the quarter before.
“Based on that assessment, the troika’s projection for a 4.2 per cent decline in growth for the full year is rather pessimistic,” Reuters quoted her as saying. “We would expect it to be around 4.0%.”
With the economic proving more resilient than expected and after the government returned to the international markets after a three year absence with a €750 mln five-year bond yielding 4.75%, Georghadji said commercial banks were wise to try to raise capital ahead of eurozone-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.
The Bank of Cyprus board is expected to discuss proposals by advisors HSBC on Thursday on how to go about a capital increase, which reports suggest could range from €500 mln to 1 bln.
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