Bank of Japan leaves interest rates unchanged at 0.5%

Bank of Japan leaves interest rates unchanged at 0.5%
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First Published: Tue, Jul 15 2008. 12 38 PM IST
Updated: Tue, Jul 15 2008. 12 38 PM IST
Tokyo: Japan’s central bank on Tuesday left its super-low interest rates unchanged as it cut its growth forecasts for Asia’s largest economy for the second time in less than three months.
The policy board decided unanimously to leave interest rates at 0.5%, where they have been since February 2007, the Bank of Japan said in a statement at the end of a two-day meeting.
The central bank trimmed its forecast for economic growth in the current fiscal year to March to 1.2% from 1.5% previously.
It also lowered its forecast for gross domestic product (GDP) growth in the next fiscal year to 1.5% from 1.7%.
“Economic growth is slowing further reflecting weaker growth in business fixed investment and private consumption against the backdrop of high energy and materials prices,” the central bank said in a statement.
“While growth will likely remain slow for the time being, it is expected to gradually return onto a moderate growth path thereafter,” it predicted.
The central bank also revised upward its estimate for core consumer price inflation to 1.8% this fiscal year from 1.1% previously.
Inflation “is expected to gradually moderate after becoming somewhat elevated in coming months,” the BoJ said, predicting core consumer prices would rise by 1.1% in the next fiscal year.
This suggests “that the possibility of the economy remaining on a sustainable growth path with price stability is relatively high,” it added.
The timing of the revisions was unusual as the Bank of Japan had already lowered its growth forecasts at the end of April in a twice-yearly report on the world’s second-largest economy.
Japan’s central bank for years battled to end deflation with an unprecedented policy of virtually free credit.
But the return of inflation has also triggered concern among policymakers because it is being driven by rising oil and food costs, which are making life tougher for households and companies.
Core inflation hit a decade-high of 1.5% in May, sparking worries that higher costs of commodities such as oil, steel and grains will hit company profits and consumer spending.
“Inflationary pressures are increasing globally,” the BoJ noted.
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First Published: Tue, Jul 15 2008. 12 38 PM IST