Bank of Italy Governor

Negative Rates Are Not Forever

Banca d'Italia Governor Ignazio Visco defends ECB monetary policy, but also worries about the impact on banks.
  • Why it matters

    Why it matters

    The Italian central banker is a voting member of the European Central Bank’s rate-setting governing council. He warns that the ECB is needed to avert deflation and buy time for the euro zone to grow.

  • Facts


    • Born in Naples in 1949, Ignazio Visco has been part of the Bank of Italy since 1972.
    • Mr. Visco replaced ECB President Mario Draghi as head of the Italian central bank in November 2011.
    • Consumer prices in the 19-nation euro zone fell back into negative territory in April, dropping 0.2 percent year-on-year.
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With the latest dire inflation figures for the euro zone confirmed on Wednesday, Ignazio Visco’s latest comments seem especially prescient.

The governor of Italy’s central bank, the Banka d’Italia, warned in an interview with Handelsblatt that there remains a “concrete deflation risk” in the euro zone. That risk was part of the reason the European Central Bank had to remain aggressive with its monetary policy, which has sought to push down interest rates in the 19-nation euro zone to record lows.

Consumer prices in the currency bloc tumbled back into negative territory in April, according to the statistical agency Eurostat. Prices fell 0.2 percent year-on-year, compared to a flat rate in March. Even excluding more volatile prices like energy, prices rose only 0.7 percent on the month. That is far below the European Central Bank’s declared target of keeping prices “close to but below” 2 percent over the medium term.

Mr. Visco, who succeeded ECB President Mario Draghi at the Italian central bank, defended the ECB’s aggressive policies in the face of tough criticism from German policymakers, though he stopped short of calling for new measures to stimulate the European economy. The policies implemented by the ECB this year needed to be monitored for their effects in the coming months and given time to work.

But Mr. Visco also acknowledged that some of the ECB’s policies may be affecting banks’ health and profitability. “You can’t have negative rates forever,” he said, referring to the ECB’s decision to push the rate it offers banks that deposit reserves with the ECB into negative territory. He also warned that a new “bail-in” plan introduced at the beginning of the year – designed to force investors to pay for a bank’s failure in future rather than taxpayers – may be scaring off investors.


Handelsblatt: Mr. Visco, is the quantitative-easing program of the European Central Bank really working? Looking at the inflation rate in the euro zone, it is far away from the 2-percent target.

Ignazio Visco: What we did is what had to be done. And we have a mandate of delivering price stability. Without the asset purchase program, the inflation rate would be substantially lower than it is. Currently, we would face a stronger reduction in prices. And it is meant to avoid that this very low inflation is transferred into a permanent fall in inflation expectations. So again: the program has worked.

But does the ECB have to do more?

We have increased the size and extended the length of our program, and decided to include corporate bonds among the purchasable assets; this will be implemented this summer. We have to monitor what goes on. Obviously you can’t have negative rates forever.

If you look at the oil price, the core inflation rate that is still low and the meager growth rate in the euro zone, do you think it is realistic to reach the 2-percent inflation target in the next years?

Well, oil prices fall once, so they don’t exert a negative effect every year. The market doesn’t think that the 2-percent target will be reached in the next few years, but the important thing is an increasing trend in price dynamics, towards price stability, which we need to reach in the medium term.

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