Bank of Italy’s Visco warns of potential red ink due to ECB’s interest rate hike | Plans to step down from Via Nazionale leadership in November

The Warning

The Governor of Bank of Italy, Ignazio Visco, has issued a warning about the potential risk individuals and companies will face following the recent hike on interest rates by the European Central Bank (ECB). Visco stated that the increase on interest rates will impact on the borrowing cost of both individuals and firms, particularly those with high debts, hence creating threats in the financial system.

The Resignation

In his address to the press, Visco also announced his plan to step down from his position as governor of the Bank of Italy, after eight turbulent years at the helm of the Via Nazionale for the country. The end of his tenure is scheduled for the end of November.

The ECB Interest Rate Hike

The European Central Bank decision to raise its benchmark interest rate by 0.10 basis points to 0.25% was motivated by the evident signs of economic recovery in the Eurozone. The decision made in June was aimed at combating inflation rate across the region.

The Projections

The interest rate increase has been projected to gradually occupy the entire yield curve, from short-term to long-term. Experts believe that the hike will gradually impact particularly on firms with high debts as they approach the point where servicing the debts will become more difficult. This may lead to distress, particularly for the banking sector that financed the earlier borrowing.

The Implications

Visco emphasized that the rising interest rates will have a considerable impact on the Italian banks, since, according to him, they have increased their bad debts on government bonds following years of boom and are currently struggling. He further warned that the hike will also slow down the recovery of the economy, since an incremental in borrowing cost would lead to a reduction in some form of investments.

The Bottom Line

The Bank of Italy Governor Ignazio Visco’s warning comes as bad news to the Italian economy, particularly at a time when the region is struggling to with huge bad debts from governments bonds. It is imperative that the government and financial institutions give energy to curbing the situation at hand.

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SUMMARY: The Governor of Bank of Italy, Ignazio Visco, has issued a warning about the potential risk individuals and companies will face following the recent hike on interest rates by the European Central Bank (ECB), an issue which will impact the borrowing cost of both individuals and firms, particularly those with high debts, hence creating threats in the financial system. Visco has also announced his plan to step down from his position as governor of the Bank of Italy, after eight turbulent years at the helm of the Via Nazionale for the country. The end of his tenure is scheduled for the end of November. #BUSINESS