OECD: Bank of Japan should maintain the current interest rate to overcome deflation

OECD recommends that the Bank of Japan to maintain close to zero interest rates until the country has not yet overcome deflation. The OECD also warns that the fall in prices may continue and interfere with economic recovery in Japan, reports Reuters.

We believe that the Bank of Japan should maintain a policy of near zero interest rates to as long as inflation remains negative. Any increase in interest rates will exacerbate the deflation - the report says a senior economist at the Organization for Economic Cooperation and Development, Randall Jones .

According to economists, deflation has negative consequences, reducing corporate profits and limit the monetary policy of the State in certain situations. Bank of Japan kept interest rates at 0.1%, after 2 times shortened it at the end of 2008. Investors expect the Bank of this country will keep rates at current levels until at least 2011.

Major consumer prices in Japan fell in August this year to 2,4%, reinforcing concern about delaying deflation processes for a longer period. The OECD expects that the main consumer prices, excluding food prices and energy prices, will drop in Japan this year, an average of 0,6%. In 2010 they are expected to fall by 1,3%, and the OECD forecast for 2011 has not yet been published.
 

As the world began to discuss how and when to stop emergency support to national economies, the OECD advises be careful when leaving the emergency measures. However, some programs of state support the economy may be terminated after the beginning of a solid recovery, experts say the organization.