Italian government interest rates under pressure!

Italia - Oct 05 2018

Weekly food for thought

Italy's 10-year benchmark interest rate has already almost doubled in just a few months due to concerns about the country's public debt, fueled by the proposals of the populist anti-system coalition. But it could still climb much higher… 

Indeed, it was just last week that the government of Rome presented a budget forecasting a deficit of 2.4% of GDP for the next three years. According to local newspapers, it now plans to contain it at 2.2% in 2020 and 2% in 2021. Italian policymakers do not seem to want to cut through the ambiguity and imbroglios to define a clear political and budgetary line to the financial markets. As a result, uncertainty rises, and stress climbs on the Italian bond markets.

Italy’s 10-year benchmark interest rate is on the rise 

The Italian parliament has, theoretically, until the end of the year to present its Budget Bill for next year, but they will publish a first draft in the coming days. The European Commission will then dissect the Budget Bill. Depending on how it goes between the Commission and the Italian Parliament, the Commission may launch a a lengthy deficit procedure, which would take us to mid-November. Meanwhile, if uncertainty continues to intensify, sovereign bond interest rates will skyrocket. If tensions do not settle quickly, confidence could be impaired and Italy's credit rating could suffer...

Julien Moussavi, Head of Economic Research - Sources: Beyond Ratings, Datastream

 

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