BOI Visco: QE Could Be Reinforced If Inflation Targets Not Met

By Silvia Marchetti

     ROME (MNI) - Bank of Italy governor Ignazio Visco said on Tuesday that the

European Central Bank was ready to reinforce its asset purchase program in the

near future if needed, after the European Central Bank started unwinding last

week its accommodative monetary policy.

     The ECB at this month's meeting slowed the pace of its Quantitative Easing

(QE) to E30 billion per month but Visco said they were "ready to reinforce the

program" if the conditions that resulted are inconsistent with further progress

on inflation.

     "We expect that rates will remain at current levels for a prolonged period,

beyond the horizon of asset purchases", Visco added, talking at the Savings Day

event in Rome.

     "These decisions allow (us) to maintain an elevated degree of monetary

accommodation", he said/

     Visco, who has just been re-appointed by Rome's government for a second

6-year mandate, acknowledged that Italy's economy was finally growing again and

credit flows were reviving as lenders are getting rid of the stock of bad loans

sitting on their balance sheets.

     Non-performing loans "fell to E150 billion in June, equal to 8.4% of total

loans, from the peak of E200 billion, 11% of total loans, reached in 2015", said

the governor.

     Yet despite the progress made in increasing the stability of Italy's

financial sector, Visco urged banks to further clean-up their balance sheets and

boost efficiency, while the government should continue along the path of reform.

     "Economic policies aimed at favouring growth represent a pillar for the

protection of savings," Visco said.

     Visco defended Italy's banking system, noting that "despite the limitations

of the new European regulatory framework and faced with a more severe economic

crisis than elsewhere, in Italy resources used in bank crises resolution have

been largely inferior to those deployed in other countries". 

     "Bank supervision can significantly reduce the probability that banking

crises occur, but cannot eliminate such risk", he added.

     The governor criticised the abrupt shift to the new bail-in rules of the

European Bank Recovery and Resolution Directive (BRRD) and its thorny aspects:

"As I have observed in more than one occasion, the passage to the new system has

been abrupt; banks were not given time to issue new bonds to absorb the losses

in case of crisis; and the application of the new rules to those financial

instruments already issued has not been avoided".

     Visco also voiced concern over the multitude of authorities and bodies

dealing with bank supervision that has caused overlapping and "delay" in solving

bank crises.

     Indirectly referring to rising criticism from several political parties

over how the Bank of Italy, and therefore its governor, handled several recent

Italian bank crises, Visco said the BOI's "decisions and interventions continue

with determination, supervision on banking behaviour is firm and strong" adding

that "we are ready to give account for our actions to the country and

institutions".

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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