Bank of Korea Holds Base Rate at 2.5%


At its July 10th, 2014 meeting, South Korean Monetary Policy Committee decided to maintain the base rate on hold at 2.50 percent for the fourteenth straight month, as the country continued to enjoy buoyant exports while inflationary pressures appear to be somewhat weaker than expected. The Committee also lowered growth outlook for 2014 to become 3.8 percent from the initial target 4 percent.

Excerpt from the statement by the Bank of Korea:

The Committee forecasts that the global economy will sustain its modest recovery going forward, centering around advanced economies, but judges that the possibility exists of its being affected by the changes in global financial market conditions stemming from the shift in the US Federal Reserve’s monetary policy stance and by the weakening of economic growth in some emerging market countries.
 
In Korea, despite exports having maintained their buoyancy the Committee appraises economic growth to have slowed somewhat, as domestic demand has slackened due largely to the impacts of the Sewol ferry accident. On the employment front, the number of persons employed has shown an uptrend similar to its level of recent years, led by increases in the 50-and-above age group and in the service sector. The Committee expects that the negative output gap in the domestic economy will gradually narrow going forward, although its pace of narrowing will be moderate.

Consumer price inflation registered 1.7 percent in June, as in May, even despite a narrowing of the extent of decline in agricultural product prices as the decline in petroleum product prices accelerated. Core inflation excluding the prices of agricultural and petroleum products fell slightly, from 2.2 percent to 2.1 percent. The Committee forecasts that inflation will gradually rise, although inflationary pressures appear to be somewhat weaker than previously expected. Housing prices in the country excluding Seoul and its surrounding areas showed a slight upward movement, while leasehold-deposit prices both in Seoul and its surrounding areas and in the rest of the country continued their modest uptrends.
 
In the domestic financial markets, influenced by improvements in economic indicators in and the accommodative monetary policy stances of major countries, as well as by inflows of foreigners’ securities investment funds, stock prices have risen, long-term market interest rates have fallen, and the Korean won has appreciated.
 
Looking ahead, the Committee will conduct monetary policy so as to keep consumer price inflation within the inflation target range over a medium-term horizon while supporting the recovery of economic growth. In this process it will closely monitor external risk factors such as shifts in major countries’ monetary policies, as well as the possibility of a delay in the domestic demand recovery influenced for example by the Sewol ferry accident.




Bank of Korea Holds Base Rate at 2.5%


Bank of Korea l Rida l rida@tradingeconomics.com
7/10/2014 3:50:02 AM