Fitch downgraded Italy’s credit rating to BBB- yesterday, down from BBB, with a stable outlook. The rating is now just a single notch above “junk level”. The agency said “the downgrade reflects the significant impact of the global Covid-19 pandemic on Italy’s economy and the sovereign’s fiscal position…. According to our baseline debt dynamics scenario, the [debt] to GDP ratio will only stabilise at this very high level over the medium term, underlining debt sustainability risks.”
Fitch also warned “downward pressure on the rating could resume if the government does not implement a credible economic growth and fiscal strategy that enhances confidence that general government debt/GDP will be placed on a downward path over time.”
Italian Finance Minister Roberto Gualtieri responded and said “the fundamentals of Italy’s economy and public finances are solid”.He added that Fitch’s move didn’t take into account the measures by EU. “In particular, the strategic orientation of the European Central Bank does not seem to be adequately valued.”
BoJ Harada: Raising interest rates would just throw us back
Bank of Japan board member Yutaka Harada, a known dove, said in a speech that, the “current low interest rates are partly attributable to the deflationary monetary policies pursued in the past.” “The only way out is to maintain the current accommodative monetary policy in order to achieve sustained expansion of economic activity until we see increases in prices and interest rates.”
He also said, “banks’ low profitability is caused by the structural problem that they are accumulating more deposits than they can lend and the banking sector as a whole therefore will not be able to maintain its current size”. And, “raising interest rates would not solve the problem.”
Instead, “raising interest rates would lead to the following: an appreciation of the yen; falling stock prices; declines in exports, investment, consumption and employment; and the reemergence of the employment ice age.” That would “just throw us back”.
His full speech here.