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Tuesday, the Policy Board of the Bank of Japan unanimously decided to hold its key interest rate unchanged at 0.1% in an unscheduled monetary policy meeting. The central bank also decided to further enhance easy monetary conditions by introducing a new fund-supplying operation to encourage a further decline in longer-term interest rates.
It decided to lend commercial banks three-month funds at 0.1% fixed-rate. The central bank will accept Japanese government bonds, corporate bonds, commercial paper and loans on deeds as eligible collateral.
The central bank said in a statement that there is not yet sufficient momentum to support self-sustaining recovery in business fixed investment and private consumption. It noted that the pace of economic improvement is likely to remain moderate until around the middle of fiscal 2010.
On the price front, the central bank said, downward pressures on prices are expected to remain even after the annual decline in the consumer price index excluding fresh food becomes fairly moderate toward the beginning of next year.
Situations in the financial market continued to show some improvements, despite lingering severity. The central bank fears recent international financial developments and foreign exchange market instability might pose adverse effects on economic activity.
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