Korea Monetary Policy


Bank of Korea stays put for 14th consecutive meeting

At its 10 July monetary policy meeting, the Central Bank (BoK) decided to maintain the base rate unchanged at 2.50%, which was a decision the markets had expected. This is the 14th consecutive meeting at which the BoK has refrained from raising the main monetary policy rate.

As in its previous statements, the Central Bank pointed out that the global economy will maintain its gradual recovery this year, which is mainly being sustained by the economic recovery in the U.S. and other advanced economies. Regarding the Korean economy, the Bank recognized that, although exports have recorded notable increases in recent months, the economy is showing signs of cooling. The deceleration, according to the Bank, is mainly due to weaker growth in domestic demand as a result of the negative impact that the Sewol ferry accident had on private consumption. Similar to previous statements, the Bank again recognized that employment growth continues to be supported mainly by a higher number of workers in services as well as gains in the labor market among workers aged 50 and over.

Moreover, monetary authorities acknowledged that, although inflation remained subdued in June, they estimate that inflation will gradually rise, “although inflationary pressures appear to be somewhat weaker than previously expected.” In addition, the Bank stated that, the currency has appreciated due to the influence of economic conditions domestically, accommodative monetary policies in major economies, and increasing inflows of capitals due to higher demand for Korean assets.

The Central Bank concluded that authorities will conduct monetary policy in order to keep inflation contained within the Bank’s target, while supporting economic growth.

FocusEconomics Consensus Forecast panelists expect the base rate to end 2014 at 2.64%. In 2015, panelists see the policy rate ending the year at 3.06%.

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Korea Monetary Policy Chart

Korea Monetary Policy July 2014

Note: BoK Base Rate in %.
Source: Bank of Korea (BoK).

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