The Italian bank rate

«The Economist», January 21, 1933, p. 117

The reduction of the official rate of discount announced on January 7th, writes our Turin correspondent, did not take the market altogether by surprise, but the extent of the reduction from 5 per cent, to 4 per cent, was unforeseen. The last time Italy enjoyed the blessing of so low an official “general” rate of discount was in 1881; and only in 1884 and 1886 was the rate fixed so low as 4 1/2 per cent. Otherwise the rate never fell under 5 per cent., which was traditionally regarded as the lowest practicable rate. This traditional 5 per cent, rate was, in fact, modified by various special rates for special purposes, but recent practice has not been favourable to these. In the meantime a striking rise has taken place in Government securities. The 5 per cent. Consols closed on January 14th as high as 85.85. More sensational has been the progress of the old 3 1/2 per cent. Rentes, which now stand at 80.15. The steady reduction of the margin between the 5 and 3 1/2 per cent, prices has fired the imagination of the public, and rumours are current of a contemplated conversion of 5 per cent. Consols into 3 1/2 per cent. Rentes. There cannot be any talk of a forced conversion, as there has been an authoritative denial of any such intention, nor is early redemption possible, since the Government cannot offer reimbursement of the nominal 100 lire capital until after December 31, 1936. This does not exclude the possibility of the Government offering holders the free option of exchanging 5 per cent, stock convertible after 1936 for 31/2 per cent, assured for a much longer time against conversion. If the present small margin between 5 and 3 1/2 per cent. Consols were further reduced such an operation might be successful.