Monetary Authority

Although they reflected optimism economic growth expectations by the Monetary Authority, these projections were combined with a pessimistic regarding the evolution of prices view since it predicted in its report that deflation will remain three years, rather than the two years that envisaged in its previous report. The variation of prices retail core of the month of September (excluding food and energy), showed a contraction of the top 1% to 0.9% from the month of August. Retail prices observed in the interannual variation, a contraction of 2.3 per cent. The Japanese experience of the 90 where deflation has limited the growth of Japan’s economy is once again present and should limit optimism to give rise to preventive policies that prevent any possibility of relapse in the economy. In an economy where prices continue to fall, it is crucial to see if that falling prices will be a pressure on economic activity, it acknowledged in a report the Bank of Japan itself. Why the boxwood? It maintains limited fears and hopes that the economy can grow at a good pace from the fiscal year 2011? The entity relies in a gradual and uninterrupted fading of deflationary pressures. However, although since the Monetary Agency is expected a slowdown in the deflationary Dynamics until a negative variation of the order of 0.4% towards the 2011 fiscal year, the reduction in the margins of profitability by falling prices, with possible derivations on the level of employment, can curb the recovery expected in the economy and even reverse their behaviour to bring it back into recession. In this way, not to generate pressures against the economic recovery, deflation will impose restrictions on benchmark interest rates that will remain at their lows for a long time, beyond the estimated time for the interest rates of reference elsewhere in developed countries and in development. With the divergence to be observed in the behavior of monetary policy between countries, will extend the margin between rates, which will allow enticing benefits in operative of the carry trade type.