ECB’s Visco: Wise Decision to Maintain Current Interest Rates

31 October 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Ignazio Visco on Tuesday said the ECB’s decision last week to keep interest rates unchanged was adequate.

In a speech in Rome, a text of which was posted to the website of the Banca d’Italia, which he heads, Visco said that to ‘maintain reference rates at current levels for a sufficiently long period - that is, to regulate the persistence of our action rather than its intensity - is a wise decision.’

With regard to how the Governing Council responded to inflationary risks, Visco, whose mandate at the head of the Italian central bank ends today, said that ‘although of unprecedented intensity, [the reaction was] in line with the gradual evolution of the situation.’

‘[I]n the face of a supply shock of this size, it correctly aimed at counteracting the spread of inflation through subsequent adjustments in prices, wages and inflationary expectations', he said.

Monetary policy was ‘certainly bearing fruit’, he said, though he warned that excessive restrictions could have an undesired recessive effect and contribute to ‘fueling uncertainty about the economy and price stability itself.’

He addressed the concern regarding the yield differential between the 10-year Italian and German bonds and said that this was due to global factors, namely higher official rates, and international geopolitical tensions.

‘[T]he effect of this increased uncertainty on the yields of Italian public debt securities was greater than that recorded in other countries in the area, probably because investors fear for Italy's development capacity and perceive that, also for this reason, the public budget is not yet balanced’, he said.

However, the Italian economy had ‘overall solid fundamentals’, he said, citing household indebtedness and productive capacity.

‘But the most important challenge for the country remains that of implementing reforms and investments capable of pushing the potential growth rate upwards’, he said.