MILAN (Reuters) – In Italy the risks to financial stability are slightly decreasing compared to last November despite strong international geopolitical tensions.
This is what the Bank of Italy writes in the first report of the year on Financial Stability, explaining that the main elements of uncertainty in the short term are attributable to a possible worsening of conflicts and the persistence of interest rates at high levels.
After having brought rates to an all-time high, the European Central Bank has made it clear that it will proceed with the first cut in the cost of money in June, starting a cycle of monetary easing.
In the part of the report dedicated to macroeconomic risks, the Bank of Italy writes that “the continuation of the debt/GDP ratio at high values remains a risk factor, especially in the event of economic developments that are less favorable than expected”.
During a recent hearing in Parliament on the Economic and Financial Document (Def), Bank of Italy said that GDP should have grown modestly in the first months of the year with a decline in manufacturing production in the first quarter.
Released this morning, the preliminary data on GDP for the first quarter showed economic growth of 0.3%, above expectations.
The central institute explained that for the debt to fall, a significant strengthening of the GDP and a reduction of the structural deficit is necessary.
Via Nazionale recalled in relation to the “favorable market trend”, that for the secondary sector of government bonds the liquidity conditions have further improved and that in February trading reached a new historic high.
Bank of Italy also mentions the narrowing of the differential between the yields of Italian and German government bonds which today is around 130 basis points.
Speaking of families, whose share of public debt rose to 13.8% in January, the institute underlines how the vulnerability factors remain contained despite the uncertainty about the economic outlook.
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The report also states that the conditions of the Italian banking system remain good.
“The major sources of vulnerability in the medium term are connected with the potential worsening of the quality of loans resulting from the high level of interest rates and with possible difficulties in funding”.
Last week Via Nazionale announced that it will apply to banks a ‘systemic risk buffer’ (SyRB) equal to 1.0% of weighted exposures for credit and counterparty risk towards Italian residents.
“The establishment of a capital reserve for prudential purposes in the current macroeconomic and financial context will make it possible to strengthen the resilience of the Italian banking system, while at the same time minimizing the risk that its introduction could have pro-cyclical effects”, explains Bankitalia.
(Sara Rossi, editing Andrea Mandalà)
