“Rate cut closer, Italy reduces public debt”

Italy will have to “accelerate the consolidation of public accounts” through “a prudent management of public finances” with “adequate levels of primary surplus”. The governor of the Bank of Italy Fabio Panetta said this in his speech at the Assiom Forex in Genoa, underlining that “to grow, our country must “give certainty for investors on a downward trajectory of public debt. The resulting reduction in risk premiums would make the process less arduous.”

“Giving investors certainty”

A recovery of the purchasing power of wages”after the losses suffered”, thanks to the increases and decreases in prices “is physiological and will be able to support consumption and the recovery of the economy”, he explained. And “today the probability that a hypothetical strengthening of the wage dynamics will give rise to a late wage-price run-up is slim” and “if you read the data carefully” the “concerns diminish”.

Moving on to monetary policy Panetta underlines that “the disinflation process is at an advanced stage. However, if monetary policy took too long to accompany the disinflation in act “downside risks to inflation could emerge which would conflict with the symmetric nature of the objective established by the Council of the European Central Bank”.

Interest rate cut closer

“In the last two years – explains the governor – the monetary policy of ECB it suddenly went from a very expansive orientation to a clearly restrictive one. In the face of inflationary shocks of historic proportions generated by bottlenecks in global production chains and the rise in energy prices, this change of pace was necessary.” Now, however, “examination of macroeconomic conditions indicates that the disinflation is at an advanced stage and that the path towards the 2% target continues quickly. The time for a reversal in the direction of monetary policy is rapidly approaching.”

Healthy banks, now strengthen their reserves

Regarding Italian banks, their balance sheets – reported the governor of the Bank of Italy – show “a positive image” of the system thanks “also to factors of an exceptional nature”, primarily high interest rates. “It would be imprudent to rely on the unrealistic hypothesis that such a positive configuration could be repeated,” she explained, and for this reason “in view of the risks that emerge, the capital solidity” “drawing on last year’s exceptional operating income” and building “capital reserves” with the excess capital.

Credit quality, worsening expected

Panetta also explains that ” past experience iindicates that an increase in interest rates has positive effects on bank balance sheets in short period, but which over extended horizons often ends up having a negative impact on the financial conditions of families and businesses, with credit feedback“.
According to Bank of Italy estimates, “the quality of loans would worsen in the next two years. The incidence of impaired loans would remain well below the peaks reached after the sovereign debt crisis, but unforeseen events could lead to more unfavorable scenarios”. Therefore, “banks are asked to do so prudence in the classification of loans and scrupulous application of accounting principles internationalaccording to which it is necessary to recognize expected losses and carry out the related value adjustments even when the losses have not yet materialised. materialize.”
As for the non-performing loan sector, over the years “it has made considerable progress”, underlines Panetti “but it remains room for improvement”.