Bank of Italy raises Italy 2015, 2016 growth forecasts

Bank of Italy Governor Ignazio Visco attends the session 'Recharging Europe' in the Swiss mountain resort of Davos Jan 23, 2015. The Bank of Italy raised on Saturday its growth forecast for the Italian economy to above 0.5 per cent this year and more
Bank of Italy Governor Ignazio Visco attends the session 'Recharging Europe' in the Swiss mountain resort of Davos Jan 23, 2015. The Bank of Italy raised on Saturday its growth forecast for the Italian economy to above 0.5 per cent this year and more than 1.5 per cent in 2016 thanks to the launch of a sovereign bond buying programme in the euro area. -- PHOTO: REUTERS

MILAN (REUTERS) - The Bank of Italy raised on Saturday its growth forecast for the Italian economy to above 0.5 per cent this year and more than 1.5 per cent in 2016 thanks to the launch of a sovereign bond buying programme in the euro area.

Bank of Italy Governor Ignazio Visco, who is also a member of the European Central Bank's governing council, said the effects of the move announced in January were already visible on financial markets - in terms of lower interest rates and a weaker exchange rate for the euro.

In a bid to support the ailing euro zone economy and prevent deflation from setting in, the ECB has announced a quantitative easing scheme and will buy 60 billion euros (S$92.3 billion) of assets a month from March, targeting mainly government bonds.

"Lower interest rates and the depreciation of the exchange rate could bring euro area inflation to levels more consistent with the definition of price stability towards the end of 2016," Mr Visco told a financial conference in Milan. "By acting on demand, they will also help to raise gross domestic product," he said.

In the case of Italy, the effects of the bond buying programme would help lift economic growth this year and next, Mr Visco said.

Only last month the Bank of Italy had cut its growth forecast for this year to 0.4 per cent and warned that recovery would be slow and fragile.

The previous forecast for 2016 was of 1.2 per cent growth in gross domestic product.

Italy's chronically sluggish economy has not posted a single quarter of growth since the middle of 2011.

Visco said that, based on Italy's share in the ECB's capital, the purchases of Italian government bonds by the cental bank could amount to around 130 billion euros.

The ECB targets an inflation rate of below but close to 2 per cent.