“Bank lending rates are already at historical lows, but the outstanding amount of bank lending was expanding at a mediocre 2.2 percent year-on-year in December”, he said.
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Members of the Monetary Committee of the Bank of Japan had warned against adopting negative rates, an exceptional measure that should be adopted in “crisis situation”, said Monday the ‘summary of opinions “of the meeting of January 28-29”. More detailed minutes will be released in coming weeks. The European Central Bank and the central banks of Sweden, Denmark and Switzerland have negative-rate policies in place.
Policy makers have slashed interest rates to zero, or lower in some cases, and pumped up markets with trillions of dollars of stimulus, yet inflation and bond yields have stubbornly refused to rise.
By contrast, a policymaker who opposed the negative interest rate policy said, “It could lead to an increase in potential instability of the financial system as a result of further decreases in financial institutions’ profitability”.
Thieliant estimated that even if the BOJ lowered rates to negative 1 percent, commercial lenders’ annual loss would be only around 300 billion yen, or about 4 percent of annual profits. “I fear that it gives the impression to markets that monetary policy has reached its limits”, argued a member.
Peter Macdiarmid/Getty ImagesA grim reaper figure holds a globe pierced by the scythe of capitalism in front of the Bank of England during a protest on October 13, 2008 in LondonOver the past decade or so central banks around the world have made some unprecedented moves.
And as for the Fed once again delaying rate hikes because of volatile markets, Kelly said simply: “It’s a risky trap to fall into”.
In fact the statement released by the BOJ yesterday showed that there was dissent to this move by the Governor with four of the nine members not confident that the move would have the desired impact of stimulating investment demand. “It is necessary to preempt the manifestation of this risk”, the member added.
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As it now stands, Kelly expects that the downturn in the market and the persistent concerns over global factors – specifically China – will delay another rate hike in March.
