BoJ cuts rate by 20 bps, sees economic sluggishness

In yet another effort to enhance liquidity in the country's financial system, the Bank of Japan today slashed the benchmark rate to 0.3%, for the first time in seven years, even as the apex bank warned of sluggish economic activity in the coming quarters.     

Joining central banks worldwide, Japan's apex bank has cut the overnight call rate by 20 basis points to 0.3%. Earlier the rate was at 0.5%.     

The move follows Japanese Prime Minister Taro Aso unveiling an economic stimulus package worth about $ 275 bn  on Thursday.     

"Adjustments in the world economy stemming from financial crises in the US and Europe have further increased in severity.

Under these circumstances, increased sluggishness in Japan's economic activity will likely remain over the next several quarters with exports leveling off and the effects of earlier increases in energy and materials prices persisting," BoJ said in a statement today.    

The decision to slash the rate comes two days after the US Federal Reserve cut rates by 0.5% point to 1%.     

China, Hong Kong and Taiwan have also cut rates this week while the European Central Bank is expected to follow suit next week, in the wake of deteriorating economic conditions.    

Further, to ensure stability in money markets, the central bank has introduced complementary deposit facility.

The temporary measure is aimed at paying interest on excess reserve balances to further facilitate the provisioning of sufficient liquidity toward the year-end and the fiscal closure.