The fall in interest rates reflected not only the taming of inflation but also the reduction in “sovereign risk”. It is also well known that Italian households used to have high saving rates, while it is less well known that their levels of debt, and in general those of the whole of the private sector, have always been relatively low by international standards.
The high saving has meant that interest earnings have been an important component of households’ disposable income. However, when interest rates were reduced in the second half of the 1990s, the income share of net interest flows fell from an average of about 12 per cent in 1992–1996 to 8 per cent in 1999–2001.