The politics and the economics of interest rates

Bank of Japan has decided to keep the borrowing rates unchanged at 0.25 percent, concluding that it is too early to raise rates. Recent signs of slowing growth have prompted worries that Japanese economy could be faltering after five years of slow but steady growth. The central bank of the world’s second largest economy cited weaker-than-expected private consumption and growing downward pressures on domestic prices as the reason for going against an increase. BoJ had raised the level of borrowing rates by a quarter point to 0.25% last July, ending a long period of zero rates and another increase was widely expected as the economy has been doing well. The bank maintains its stance of gradually adjusting interest rate levels based on the economy and prices, though some recent comments by bank officials seemed to favour a rate increase. The decision is also being scrutinised from political angle - for the central bank's ability to maintain independence in its conduct of monetary policy.