Korea Monetary Policy


Central Bank holds rates steady for second consecutive month

At the monetary policy meeting held on 13 May, the Bank of Korea (BoK) kept the BoK Base Rate unchanged at 3.00%, in a decision which defied market analysts' expectations. The move represents the second consecutive month the BoK refrained from raising rates. That said, since the tightening cycle started in July 2010, the BoK has raised the policy rate four times in the last nine months and, following the latest hike in March, the policy rate is at its highest level since November 2008. Annual headline inflation moderated from 4.7% in March to 4.2% in April. While remaining above the BoK 3.0% 1.0 percentage point tolerance range for a fourth consecutive month, inflation pressures eased, thus providing a case for extending the pause in the tightening cycle. In a press briefing after the meeting, BoK Governor Kim Choong-soo stated that the approach adopted by the Bank to gradually lift interest rates does not imply that BoK will increase rates every month, thus providing no hint regarding next month's decision.

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