By Silvia Marchetti
ROME (MaceNews) – The Bank of Italy governor Ignazio Visco warned on Friday “not to overlook” the risk of deflation in the eurozone even though current deflationary risks are lower than they were six months ago.
“The probability of deflation is still very lower, however, the share of operators expecting an inflation not above 1.5% in the next 5 years stands at 35%, versus 10% registered in the average between mid-2014 and end of 2018”, said Visco talking at the World Savings Day in Rome and citing the results of the European Central Bank’s recent Survey of Professional Forecasters.
“The risk of deflation is lower compared to six months ago, but it should not be overlooked”, he stressed.
Visco added that the ECB’s Governing Council would be “recalibrating” its monetary policy tools and stance in December when new macroeconomic projections will be available, in order “to appropriately react to the rapid evolution of the economic and financial situation”, adding that financial conditions must remain “expansive” to meet price stability.
Visco noted that the uncertainty linked to the COVID pandemic has led to an increase in savings both in Italy and across the Eurozone, with a negative impact on the economic recovery. Italian banks are in a fitter state to tackle bad loans, he said, but greater efforts should be made also at EU level.
“In 2020 the deterioration of (Italian banks’) financial position will determine a worsening of insolvency probability”, said Visco, adding that the share of debts held by the most exposed lenders will be 20% of total loans, versus 13% before the pandemic outbreak.
“The idea, currently under discussion at EU level, to create a network between national asset management companies (across the EZ) should be favourably evaluated” to jointly handle the likely surge in non-performing loans due to the pandemic, he added. The European network should create a framework to support NPLs disposal at fair market prices.
Visco also called for a EU-wide initiative to offer “harmonised procedures to ensure an orderly exit from the market of small and medium banks” that will fail due the pandemic, along the model of the US’ Federal Deposit Insurance Committee.
The governor said Italy’s public debt remains sustainability but its “permanence at elevated levels” raises Italy’s exposure to financial shocks.
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