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BOJ officials said to eye possible negative rate on loan program

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Having adopted a negative interest rate on some excess reserves to penalize financial institutions for leaving money idle, the Bank of Japan may consider helping them lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.

[TOKYO] Having adopted a negative interest rate on some excess reserves to penalize financial institutions for leaving money idle, the Bank of Japan may consider helping them lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.

Such a discussion could happen in conjunction with any decision to make a deeper cut to the current negative rate on reserves, said the people, who asked not to be named as the matter is private.

The BOJ's Stimulating Bank Lending Facility, which now offers loans at zero per cent interest, would be the most likely vehicle for this option, they said.

The officials said that adding this to the central bank's arsenal could have a positive impact on the economy, but would also raise questions about giving subsidies to commercial lenders.

Financial institutions, who already feel penalized by the existing negative rate, could face demands from borrowers to cut their lending margins further, said the people.

Economists at BNP Paribas SA, Credit Suisse Group AG and Morgan Stanley MUFG Securities are among those who have anticipated the possibility of the BOJ adopting this kind of measure.

The BOJ had extended 24.4 trillion yen (S$301 billion) of credit under the Stimulating Bank Lending Facility as of April 10.

This initiative is separate to the core of the BOJ's monetary easing initiative, which targets an expansion in the monetary base, mainly through purchases of government bonds.

The lending facility was initiated by former BOJ governor Masaaki Shirakawa in Dec 2012.

The BOJ policy board next meets April 27-28.

23 of 41 analysts surveyed by Bloomberg forecast it to expand stimulus then.

19 of the analysts predict the central bank will increase purchases of exchange-traded funds, eight expect a boost in bond buying and eight project the BOJ will cut its negative rate, the survey conducted April 15-21 shows.

BLOOMBERG