Bank of Korea Cuts Rate to Fresh Record Low of 1.5%


The Bank of Korea decided to cut the base rate by 25 bps to fresh record low of 1.5 percent on June 11th, the second adjustment this year. Policymakers judged downside risks to the economy have expanded, mostly due to sluggish exports and to fears of MERS outbreak.

Excerpts from the statement by the Bank of Korea:

The Committee notes that the trend of decline in exports has accelerated and that consumption, which had been showing a recovery, appears to have contracted since the outbreak of Middle East Respiratory Syndrome (MERS). On the employment front, the unemployment rate has risen due mainly to an expansion in job search activities, but the employment-to-population ratio has also increased as the number of persons employed has grown. The Committee judges that the downside risks to the domestic growth path forecast in April have expanded, owing mostly to the sluggishness of exports and to the impacts of the MERS outbreak.
 
Consumer price inflation rose slightly from 0.4 percent the month before to 0.5 percent in May, due mainly to increases in prices of agricultural, livestock and fisheries products, and core inflation excluding agricultural and petroleum product prices also rose slightly to 2.1 percent, from 2.0 percent in April. Looking ahead the Committee forecasts that inflation will continue at a low level, due mainly to the effects of the low oil prices. In the housing market, the upward trends of sales and leasehold deposit prices have continued in both Seoul and its surrounding areas and the rest of the country.
 
In the domestic financial markets, influenced mostly by strengthened expectations of a policy rate hike by the US Federal Reserve, stock prices have fallen and the Korean won has depreciated against the US dollar. The won has fluctuated within a certain range against the Japanese yen. Long-term market interest rates have fallen back, after having risen in response mainly to interest rate movements in major countries and to domestic economic indicators. Bank household lending has sustained a trend of increase at a level substantially exceeding that of recent years, led by mortgage loans.
 
Looking ahead, while working to sustain the recovery of economic growth, the Committee will conduct monetary policy so as to maintain price stability over a medium-term horizon and pay greater attention to financial stability. In this process it will closely monitor the trend of increase in household debt and external risk factors such as shifts in major countries’ monetary policies, as well as the trends of capital flows.

Bank of Korea Cuts Rate to Fresh Record Low of 1.5%


Bank of Korea l Rida Husna l rida@tradingeconomics.com
6/11/2015 3:46:20 AM