ignazio visco : inflation, monetary policy and inequalities. some thoughts statement by mr ignazio visco, governor of the bank of italy and governor of the constituency of albania, greece, italy, malta, portugal, san marino and timor - leste, at the 107th meeting of the development committee ( joint ministerial committee of the boards of governors of the bank and the fund on the transfer of real resources to developing countries ), washington dc, 12 april 2023. * * * after more than a year, the world continues to be shaken by the unlawful and unjustified russian aggression to ukraine. we strongly support and admire the ukrainian people for their spirited and courageous resistance, and we commend the world bank group ( wbg ) for its continued support to ukraine, including through the careful assessment of damage and needs. the global economy has shown more resilience than expected. available indicators suggest that the slowdown, though substantial, is smaller than anticipated until a few months ago. still, we are dealing with an extremely uncertain environment, and growth and inflation continue to be adversely affected by the war. recent banking distress episodes and the subsequent tensions, though contained by the appropriate response of domestic authorities, make the outlook for the global economy and financial stability more uncertain and prone to downside risks. these episodes indicate the importance of sound regulation and close monitoring of intermediaries'exposure to, inter alia, interest rate and liquidity risks. this is true not only for banks but also for non - bank financial institutions, which neither benefit from a comparable regulatory and supervisory framework nor have access to central bank emergency liquidity assistance. the response to short - term developments should not come at the expense of the attention to longer - term issues. because of compounded crises, many developing countries are facing setbacks in fighting extreme poverty and achieving shared prosperity. learning losses, insufficient physical and digital investments, subdued productivity growth, and weak institutions are all constraints on output growth, contributing to debt vulnerabilities. the wbg is the key development partner to low - and middle - income countries. over the last years, it has supported the immediate needs of the most vulnerable – badly hit by covid - 19, and the energy and food crises – while maintaining focus on long - term development goals. now it must further integrate global challenges – like climate change, pandemics, fragility, and conflict – into its core development agenda to eradicate extreme

ran an agricultural credit scheme of which the interest rate payable by the farmer had been fixed at 9 percent when the market interest rates amounted to about 20 per cent. the subsidy was intended to reduce the farmers ’ cost of production and promote agriculture. a study conducted by adb revealed that the effective interest rate paid by farmers, after taking into account all the costs, amounted to 30 percent, much higher than even the free market rates. the difference between the actual cost incurred by the farmer and the rate paid by him to the lending bank was wastage of resources. it had not been the income of anyone. hence, such costs are known as deadweight losses. microfinance institutions should, therefore, strive to keep the transaction costs at a minimum and eliminate the possibility of incurring deadweight losses. the on - time delivery of microfinance loans is also a very important requirement. most of the microfinance projects are agriculture based businesses. hence, there is a necessity for meeting crucial expenses on - time. for instance, if a farmer has to apply fertilizer to his field, he has to do it on the due date. for him to buy fertilizer, he needs money also on the due date. this requires the microfinance institutions to release their loans on the due dates. any undue delay would be immensely costly. a final word should also be said about the subsidization of the interest rates under microfinance credit schemes. such subsidized credit is demanded, not by the microfinance borrowers, but by urban based social workers and politicians. the problem with subsidized credit is that it flows not into the microfinance projects but elsewhere. what microfinance borrowers need is not cheap credit. they need credit on simple terms in time at zero transaction costs. when the credit is subsidized, it not only leads to wastage, but also goes into the hands of undeserving individuals. most probably, middle class and lower middle class people would flock to appropriate such credit which they plan to use for other types of non - productive purposes. in this context, informal money lenders would definitely provide a role model for microfinance institutions. instead of trying to fight the money lenders, microfinance institutions should learn good management practices adopted by them. all in all, microfinance delivery is a very subtle subject which should be handled very carefully. the best practices of microfin