Rise in London Bank Rate – Bank of Italy – Stock Exchanges

«The Economist», 12 ottobre 1929, p. 667

Turin, October 1

So far no rise in Bank rate seems to be contemplated as a result of the raising of the British rate. Gold is not leaving Italy. The relevant figures from the Bank of Italy’s returns (in million lire) are as follows:

There is a decline in the note issue and in those items on which the Bank could draw for purposes of making payments. To this there corresponds, on the assets side, a decrease only in the gold bills and credits figure. Gold itself is increasing. On a scale far less noteworthy, the Bank of Italy, like the Bank of France, is pursuing a policy of gold purchases at the expense of gold bills and credits. And, as the Bank is not obliged to give gold in exchange for notes, but has the alternative of gold bills, and as notes can be exchanged for gold bills only in case of bona fide commercial transactions, exclusive of export of capital, there is no likelihood at present of gold leaving Italy. Financial writers, while concluding that a rise in the rate of interest is not in sight, add, however, that some caution must be exercised on account of the persistent habit of exporters of depositing in foreign banks credits for goods sold. This habit puts the Bank of Italy under useless pressure, as it causes importers to have recourse to the bank, in the absence of a sufficient supply of bills on the market.

The Stock Exchanges, which were already stagnant, were unfavourably affected by the rise of the London interest rate. The Italian market is much more sensitive than it used to be to the vagaries of foreign Bourses, as is evidenced by the copious publicity given by the daily Press to quotations of Italian and foreign securities in the New York, London, Paris, Amsterdam and Berlin Bourses. The general Bachi index number of 173 variable dividend representative securities (100=December, 1913, 163.4 December, 1924; 101.1 July, 1927) opened the year at 141.3. After a brief spurt to 143.5 at the end of February, it fell until, at the end of August, it was at 132.8. Thereafter quotations sagged badly: Bank of Italy shares, which closed August at 1908, on September 28th were quoted at only 1800; and between the same dates the Banca Commerciale Italiana decreased from 1380 to 1330, Credito Italiano from 837 to 786, Meridional Railways (now a sort of investment trust) from 1198 to 1140, General Navigation Co. from 510 to 507, Snia Viscosa from 87 to 78, Fiat (motor cars, etc.) from 518 to 440, Edison (electricity) from 874 to 851, Romani Beni Stabili (real estate) from 659 to 617. A few securities, such as Montecatini (chemical manures) are firm at 258, Ligurian-Lombard Sugars up from 786 to 852. Cotton securities, also, are firmer, such as Turati from 760 to 775, Val d’Olona from 440 to 480, etc. Dear money prospects are particularly discouraging to would-be bulls on the Bourses, since from Easter, 1925, onwards, the general public has deserted the Stock Exchanges, leaving them to professionals, who vainly try to create business between themselves and the bank.