Overnight call rate refers to the interest rate that central banks use to lend funds to other financial institutions overnight. Central banks consider the overnight rate as the target rate to influence monetary policy.
In Japan’s case, before the Bank of Japan (BoJ) made an announcement on 4 April 2013, the central bank’s policy was that its holdings of sovereign bonds should not exceed the total amount of money circulated in public and commercial bank deposits held in its reserve. This sum is called base money, or monetary base. However, the BoJ changed this framework by shifting its target from the overnight call rate to base money. The new framework will allow the central bank to buy government bonds infinitely, and the monetary base amount would nearly double by the end of 2014.
Scraping the interest rate as a target, and targeting the base money instead, is a form of the BoJ’s unprecedented stimulus for boosting growth and reaching the 2% inflation target in the next two years.
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