Cyprus central bank chief sees return to growth, end to capital controls

Bailed-out Cyprus is expected to return to growth in 2015, while capital controls imposed during a chaotic bailout in 2013 could be completely dismantled soon, its central bank governor said on Monday.

Chrystalla Georghadji told parliament she expected 0.5 percent growth in 2015. A European Commission forecast of 2.8 percent contraction in the island’s economy this year was «realistic», she said.

Authorities had previously forecast a 2014 contraction of 3.2 percent. Cyprus slipped into recession in 2011. Data in November showed the economy shrinking by an annual 2.2 percent in the third quarter, from 2 percent in the second quarter.

“I’m optimistic 2015 will be a year where Cyprus will return to growth, the signs of recovery are faster,» Georghadji, who also represents Cyprus on the Governing Council of the European Central Bank, told parliament’s financial affairs committee.

She did not make any reference to the euro zone economy.

Cyprus needed an international bailout of 10 billion euros ($12 billion) from the European Commission and the International Monetary Fund in early 2013.

Authorities then imposed capital controls to prevent a run on banks, a first in the history of the euro zone. Domestic controls have since been fully lifted, but vetting is still required for large bank remittances overseas.

Asked when Cyprus may fully dismantle controls, Georghadji said bank deposits had started to ‘stabilise’ after the results of EU-wide stress tests, in which four Cyprus-based banks participated.

“We have assessed that after the successful results of the (bank) stress tests there has been a stabilisation of the system. We have to ensure that is permanent, and once that is ascertained, and I imagine soon, the last restrictions on capital movements will be eased,» she said.

International aid to Cyprus was contingent on authorities shutting down a loss-making bank, Alibi, and forcing depositors in Bank of Cyprus to forfeit savings over 100,000 euros to recapitalise the lender.

It was the first time in the history of the euro zone crisis that bank depositors, rather than euro zone taxpayers, were forced to shoulder the cost of recapitalising a bank.

Both Cypriot banks booked billions in losses from an EU-sanctioned haircut on Greek sovereign bonds designed to make Athens’ debt mountain more manageable.