Panetta: Bank of Italy returns to profit, outlines strategy

Banca d'Italia returned to a gross profit of about €3 billion for 2025, an improvement of over €10 billion from previous years' losses.

This turnaround primarily reflects the effects of monetary policy, with declining key interest rates and the downsizing of the Bank's balance sheet leading to a marked improvement in net interest income.

However, the international environment in early 2026 deteriorated rapidly due to intensified tensions with Iran, escalating into a military confrontation in the Middle East.

This conflict has severely disrupted exports through the Strait of Hormuz and damaged energy infrastructure, causing a surge in oil and gas prices.

The immediate effect is weaker growth prospects, renewed inflationary pressures, higher yields, and a weaker euro, rekindling fears of deteriorating credit standards.

The ECB's recent projections now anticipate inflation above target in 2026 and lower economic growth than previously estimated.

In 2025, the ECB Governing Council cut key interest rates by 100 basis points, setting the deposit facility rate at 2 percent since last June as euro area inflation neared its target.

The Eurosystem's securities portfolios decreased by over €500 billion due to non-reinvestment.

Banks' liquidity holdings, though reduced by €400 billion, remained substantial at €2,400 billion.

Banca d'Italia's balance sheet expanded by around €10 billion in 2025, primarily from €91 billion in unrealized gold reserve gains.

This offset an €80 billion reduction in monetary policy securities.

The Bank's negative TARGET balance narrowed by €58 billion to €358 billion, largely due to increased foreign investment in Italian government bonds.