Korea: Bank of Korea holds base rate at 1.50% again in November
November 12, 2015
At its 12 November monetary policy meeting, the Bank of Korea (BoK) held its base rate at a record low 1.50%. The decision met market expectations and marks the fifth consecutive meeting in which the rate was kept on hold. An acceleration in GDP growth in Q3, ongoing weakness in the export sector, high household debt, and the looming Fed interest rate hike deterred the Bank from making a move.
In its accompanying statement, the BoK stated that while the U.S. economy continues to enjoy a sustained recovery and European economies make modest improvements, growth in China and other emerging markets is slowing. The Bank expects that, going forward, global growth will center in advanced economies, particularly the United States. However, the global economy may be affected by volatility in international financial markets, a potential increase in U.S. interest rates and persistently weak emerging market growth.
On the domestic front, the Bank pointed out that consumption and investment are recovering, and consumer and business confidence has also improved. The Bank noted that employment is on the rise. However, exports are still stuck in a downward trend. The Bank projects that the domestic economy will continue to recover on strong demand dynamics, but uncertainty regarding overall growth is high due to unfavorable external conditions.
Regarding price developments, the BoK stated that inflation increased from 0.6% in September to 0.9% in October. Core inflation, which excludes agriculture and petroleum prices, rose from 2.1% to 2.3% in October. The Bank expects that low oil prices will keep inflation muted throughout this year. The Bank also noted that the Korean won has started to deprecate as the likelihood of an interest rate hike in the U.S. increases.
Finally, the Bank emphasized its commitment to balancing economic recovery with price and financial stability. Going forward, the Bank will closely monitor household debt trends and external risk factors. The last monetary policy meeting of the year is scheduled for 10 December.
Author: Carl Kelly, Economist