STIR: Effective Fed Funds Rate

FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $94B
• Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $248B

The Italian medium-term structural budget plan confirms prior reports that the Government will target a budget deficit below the EU’s 3% of GDP limit by 2026. However, we note that the current Bloomberg consensus sees the 2026 deficit at 3.6% of GDP above the Government’s 2.8% projection.

• The Government debt/GDP ratio is still expected to rise into 2026 (to 137.8% from 134.8% in 2023) before starting to fall. The plan notes that tax compensation from the Superbonus scheme (which was ended at the start of this year) will continue to impact public finances over the next few years.
• The structural primary balance – which excludes interest payments and cyclical/one-off effects – is expected to be -0.5% of GDP in 2024, 0.0% in 2025 and 0.6% in 2026 (before continuing to rise through to 2029). These dynamics would be in line with the EC’s Excessive Debt Procedure requirements, and the 2024 structural primary balance is 6 tenths above the EC’s April forecast.
• The Government’s forecasts incorporate ISTAT’s recent national account revisions, where 2021-2023 nominal and real GDP growth were revised higher.
• This provided a more favourable starting point for the fiscal plan’s projections, while the Government also noted that “the significant growth in employment, together with the increase in average wages, has supported tax revenues” so far this year.
• There has not been any material reaction in the 10-year BTP/Bund spread to the details of the medium-term plan, with the sub-3% deficit target by 2026 having already been priced in over the past few weeks. However, BTPs may be sensitive to Friday’s Q2 fiscal data, which will serve as an initial litmus test for the credibility of Italy’s fiscal plans.