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Another member expressed satisfaction that interest rates in general were declining - except for interest rates on instruments maturing beyond the year-end, which remained at high levels - as seen in recent decisions by banks to reduce long-term prime lending rates.
Interest rates on term instruments with relatively short maturity continued to be at historically low levels, but those on term instruments maturing beyond the year-end were increasing reflecting concerns about the Year 2000 problem.
In the meantime, market interest rates on instruments maturing after the fiscal year-end (March 1999) are on an upward trend, suggesting continued concern of market participants over liquidity risk.
And second, interest rates on term instruments maturing beyond the fiscal year-end on March 31 rose, exerting upward pressure on the overnight call rate.
In the financial markets, concern over credit and liquidity risks continues to exist.One manifestation of this is the market interest rates on instruments maturing after the fiscal year-end in March 1999, which are likely to remain high.
The rise in interest rates on term instruments maturing beyond end-September, the end of the semi-annual accounting period, was extremely small compared to that observed in the same period of the previous year.
B. Financial Developments On the financial front, some members pointed out that short-term market rates including those on instruments with relatively longer maturity, for example, instruments maturing beyond the fiscal year-end, had declined significantly due to the Bank's decisions at the previous meeting to reduce the official discount rate and to adopt measures to improve the way in which liquidity was provided.
However, due to the Bank's active injection of ample funds into the market, the weighted average of the uncollateralized overnight call rate for that day was 0.32 percent, which was not especially high for the last business day of the year.In early January 1999, the key rate tended to rise because many contracts on term instruments maturing over the year-end became due.The Bank therefore supplied ample funds to stabilize the market.
One member remarked that it was necessary to watch market developments very closely, since (1) firms were making early moves to secure liquidity for the end of September, (2) upward pressure was already appearing on interest rates on instruments maturing after the end of September, and (3) various movements related to financial system measures were expected to develop toward the end of September.
And fourth, interest rates on term instruments maturing beyond February 29 were rising reflecting active fund-raising by some financial institutions driven by concerns that disruptions might occur to computer systems on February 29 for reasons similar to the Year 2000 problem.
Despite the Bank's provision of massive funds, however, interbank interest rates on term instruments maturing beyond the year-end increased.This was because lenders held back from investing funds over the year-end in the money market.
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