BoC’s Summary of Deliberations from its July meeting indicates a “clear consensus” on the need for more rate cuts if inflation continues to ease. With inflation “closer to target” and “downside risks” becoming “more prominent,” members agreed that it would be appropriate to “lower the policy rate further” if inflation follows the projected path.
During the meeting, members discussed various risks to the inflation outlook. The focus was on “downside risks” more than in previous meetings. Members acknowledged that weak consumer sentiment is likely to persist, posing a risk that consumer spending could be “significantly weaker” than expected in 2025 and 2026. Additionally, further labor market weakness could “delay the rebound” in consumption, exerting “downward pressure on growth and inflation.”
Conversely, some members highlighted the “stickiness of services price inflation,” which could keep inflation elevated. They noted that price pressures in services, which are “more closely affected by wages,” are unlikely to be offset by the disinflation seen in goods and other services in recent months.
One BoJ member suggests gradual rate hike to above 1% neutral rate
BoJ’s Summary of Opinions from the July 30-31 meeting reveals that board members discussed further rate hikes after implementing the second interest rate increase this year at the meeting.
One member’s opinion stood out, suggesting that, assuming the price stability target is achieved in the second half of fiscal 2025, BoJ should raise the policy interest rate to the level of the “neutral interest rate.” This neutral rate is estimated to be “at least around 1 percent.” To avoid rapid hikes, BoJ should increase the policy interest rate in a “timely and gradual manner.”
The consensus among members is that economic activity and prices have been developing generally “in line with the Bank’s outlook.” Consequently, it is deemed appropriate for to raise the policy interest rate and adjust the degree of monetary accommodation.
One opinion highlighted that raising interest rates at a “moderate pace” aligns the adjustment in monetary accommodation with underlying inflation. Such moves “will not have monetary tightening effects.”
Full BoJ summary of opinions here.