FXStreet (Mumbai) - Speaking at the Bruegel Annual Meeting in Brussels, the Bank of Japan's (BOJ) board member Sayuri Shirai said central banks should not rule out the possibility of cutting rates on their excess reserves, and even imposing negative rates.
However, she warned that such moves should be properly discussed as there are significant differences in market structures around the world.
She added, that the BOJ has maintained a positive interest rate on excess reserves because a negative rate could harm the intermediary function of financial institutions.
Key Quotes:
Comparing European easing policies and those of the BOJ, Shirai said that easing in Japan "was adopted in an environment that provided little room for further cuts in short- to medium-term interest rates."
"To generate a large-scale monetary-easing effect, therefore, the BoJ decided to adopt a strategy of exerting downward pressure on real long-term interest rates; it did so through a decline in nominal long-term interest rates and an increase in inflation expectations. This strategy is more accommodative than a policy of seeking further marginal cuts in shorter-term interest rates."
On inflation, "In the euro area, short-term price expectations of households and firms dropped after the financial crises and are currently stagnant; the medium- to long-term inflation expectations of economists and market-based indicators are somewhat below, but roughly in line with, the price stability target,"
"In Japan, the medium- to long-term inflation expectations of economists and market-based indicators remain around 1% percent. This is partly because the price rising trend -- except for the oil price -- seems to have been settling,"
"It's important for the BOJ to maintain an accommodative monetary environment to support economic recovery and make greater efforts to increase public awareness of that target and the BoJ's intention."
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